Taylor Jackson, an investment analyst at CalSTRS, had recently taken on a new role evaluating the environmental performance of consumer staples firms within the fund’s investment portfolio. Managing over $330 billion in assets, CalSTRS has long been a leader in socially responsible investing, leveraging its influence to encourage companies to enhance their environmental performance.
Taylor’s first major assignment required her to develop a systematic methodology to identify the top three most environmentally conscious firms in the consumer staples sector. Her analysis would rely on corporate sustainability data from UCLA’s Open for Good (OFG) Project, which collects environmental transparency, performance, and governance metrics from publicly disclosed sources. However, deciding which metrics to include, how to ensure comparability across firms, and how to aggregate the data presented significant challenges.
As she reviewed the dataset, Taylor considered several key questions: How should governance disclosures be weighed against actual environmental performance? Should larger firms be evaluated differently from smaller ones? Moreover, how could inconsistencies be accounted for in firms’ self-reported sustainability metrics? She understood that her methodology would influence not just the ranking of firms but also CalSTRS' broader investment strategy in environmental sustainability.
The Consumer Staples sector, as defined by the Global Industry Classification Standard (GICS), includes companies involved in food and staples retailing, food and beverage production, household goods, and personal care products. This sector is a major component of the U.S. economy, with a market capitalization of over $3 trillion, representing approximately 7% of the S&P 500. It consists of well-known firms such as Procter & Gamble, Coca-Cola, PepsiCo, and Walmart, which have extensive global supply chains and significant resource dependencies (See OFG Metrics & Methodology for a list of the S&P 500 firms in this sector) .
Many firms in this sector face significant environmental challenges, including carbon emissions from supply chains, which are particularly high due to agricultural production, transportation, and energy-intensive manufacturing processes. Water usage in production is another key concern, especially for beverage companies and food processors that rely on large volumes of water for ingredients, processing, and cleaning. Additionally, waste generation from packaging remains a pressing issue, as many consumer products are packaged in plastic, contributing to pollution and increasing regulatory scrutiny.
Beyond these environmental risks, the sector also grapples with issues related to deforestation, particularly in sourcing palm oil, soy, and paper products, and biodiversity loss linked to intensive agricultural practices. Companies are under growing pressure from investors, such as CalSTRS, regulators, and consumers, to enhance disclosure and management of these sustainability risks. Strategies such as adopting science-based emissions targets, improving supply chain transparency, investing in circular packaging solutions, and increasing the use of renewable energy are critical to maintaining long-term competitiveness in this sector.
Despite growing pressure for corporate transparency, sustainability reporting often remains voluntary. Firms often report selectively, emphasizing positive metrics while omitting areas where they perform poorly. This variation in disclosure makes it difficult to compare firms and assess their true environmental impact.
The Open for Good project (OFG) at UCLA collects sustainability disclosures that firms publicly release, including information from corporate sustainability reports and mandatory filings such as annual proxy statements. OFG’s metrics are based on the environmental disclosures identified in the World Economic Forum’s 2020 report, Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation (link). This report outlines key metrics that all firms should track, disclose, and improve upon, drawing from widely recognized environmental reporting standards such as the Carbon Disclosure Project (CDP), the World Resources Institute (WRI), the Task Force on Climate-related Financial Disclosures (TCFD), and the Greenhouse Gas Protocol (GHG Protocol). OFG's metrics focus on three key dimensions: Transparency, Performance, and Governance to provide a comprehensive view of a firm's environmental practices. Transparency assesses a company's openness in disclosing environmental impacts, while Performance evaluates quantitative data such as emissions, water usage, and waste generation. Governance reflects a firm’s commitment through leadership statements, board expertise, and goal setting, ensuring accountability in environmental management.
Taylor had access to an OFG dataset covering 10 Consumer Staples firms—some of the largest in the S&P 500 index—identified by CalSTRS as quality investment opportunities. These firms include Coca-Cola, Colgate-Palmolive, Clorox, Estée Lauder, General Mills, Hershey’s, Kraft Heinz, Molson Coors, PepsiCo, and Philip Morris (see OFG Metrics & Methodology page for a brief description of each firm). The dataset was compiled from publicly disclosed sustainability reports, regulatory filings, and third-party verification sources and was structured around three key categories of environmental sustainability metrics. The data is available on the Data Simulation page. See OFG Metrics & Methodology page for a complete list of metrics and definitions as well as a depiction of the metrics for each firm):
• Section I. Transparency Metrics: These assess the extent and clarity of a firm's sustainability disclosures, categorized as Full Disclosure (green), Partial Disclosure (yellow), or No Disclosure (red). Since OFG primarily relies on voluntary disclosures, evaluating transparency helps determine whether firms provide relevant and detailed information or engage in selective reporting. Some firms may provide vague, incomplete, or misleading disclosures, making it essential to assess the presence and quality of reported data.
• Section II. Performance Metrics: These include quantitative measures such as greenhouse gas (GHG) emissions, water usage, and waste generation, presented as raw values and normalized figures to adjust for firm size. These metrics allow for direct comparisons of a firm's environmental impact, helping investors assess how effectively companies manage their sustainability footprint. However, inconsistencies in methodology, such as the choice between market-based vs. location-based Scope 2 GHG emissions, create challenges in comparing firms.
• Section III. Governance Metrics: These capture qualitative aspects of a firm's environmental commitment, including board expertise in sustainability, adherence to reporting frameworks (e.g., TCFD), and third-party verification of emissions data. Strong governance structures signal a company’s long-term commitment to sustainability but do not always correlate with firm performance outcomes. Evaluating governance alongside performance helps identify firms that prioritize meaningful action over symbolic commitments.
By analyzing these three dimensions, Taylor aimed to develop a methodology for aggregating these metrics into a ranking system that could identify the most environmentally responsible firms while mitigating the risk of greenwashing, which refers to disclosing misleading or overstated claims about firms' environmental practices and performance.
Taylor recognized that selecting, standardizing, and aggregating sustainability metrics required a methodical approach. The main challenges included:
1. Metric Selection & Greenwashing Detection: Which transparency, performance, and governance metrics best reflected a firm’s environmental commitment? Should firms with incomplete data be penalized? How should non-disclosed metrics be accounted for in the analysis? How can students identify selective disclosure and potential greenwashing tactics, such as firms emphasizing positive environmental data while omitting areas where they perform poorly?
2. Comparability Across Firms: Should metrics be adjusted for firm size or industry-specific factors? How should inconsistencies in reporting methodologies (e.g., market-based vs. location-based GHG emissions) be addressed? Should firms from different sub-sectors within consumer staples be compared directly?
3. Weighting Metrics: Should all metrics be weighted equally, or should performance measures be prioritized over governance indicators? How could industry relevance be factored into weighting? Should firms with strong governance but weak performance be ranked lower than firms with the reverse profile? Should governance-related commitments be penalized for not translating into tangible performance improvements?
4. Sensitivity Testing for Greenwashing Risks: How could Taylor ensure her methodology was robust and not overly sensitive to minor changes in data? How should she test different weighting schemes to validate the ranking outcomes? Should multiple ranking models be tested to assess their impact on firm rankings? How could adjusting weighting schemes help uncover firms that rank highly due to disclosure alone but have weak environmental performance?
Taylor considered the following steps in constructing a composite sustainability ranking:
• Selecting Metrics: Identifying the most meaningful indicators for assessing environmental responsibility. Transparency metrics should consider whether disclosure alone is sufficient or if the quality and specificity of disclosure should also be incorporated.
• Ensuring Comparability: Normalizing metrics for firm size and addressing discrepancies in reporting methodologies.
• Determining Weighting: Assigning appropriate weights to different categories (e.g., governance vs. performance).
• Testing Sensitivity: Experimenting with different weighting schemes to see how rankings change and identifying firms potentially engaging in greenwashing.
Taylor knew that her ranking system would not only shape investment decisions but also influence how CalSTRS engaged with firms on sustainability issues. By developing a transparent, well-reasoned approach to assessing environmental responsibility, she could help drive meaningful corporate change while ensuring that CalSTRS' investments align with its sustainability goals. However, the complexity of selecting and weighing sustainability metrics meant no single "correct" approach—only well-justified and rigorously tested methodologies.
How should she proceed?
In small groups, students are expected to develop a structured approach to rank the top three most environmentally responsible consumer staple sector firms based on the provided dataset. Each team should prepare a 5-slide PowerPoint presentation in advance, summarizing their methodology and findings. Consider the following questions:
1. Ranking Methodology: What approach should Taylor take to identify the top three firms? What trade-offs does she need to consider?
2. Metric Selection: Which transparency, performance, and governance metrics are most relevant, and why?
3. Comparability Adjustments: How should the data be adjusted for firm size, industry type, or inconsistencies in reporting methodologies?
4. Weighting Framework: How should metrics be weighted? Should some metrics carry more significance than others?
5. Sensitivity Testing: How do changes in weighting or metric selection impact rankings?
