The Israeli Ministry of Environmental Protection (MOEP) has recently published, for the third  consecutive year, the results of the Annual Environmental Impact Index. As in previous years, publication of the Index received the attention of the media and  of investors both in Israel and abroad.

This year, the Index applies to 44 publicly-traded and government-owned companies, that together  represent over 100 industrial facilities and 1,000 gas stations.

The top ranked poor environmental performers this year are, as in previous years, petroleum and energy companies. For the  complete “red list” click here.

According to the MOEP, the goal of the Index is mainly to raise public awareness  of environmental performance and compliance by the companies ranked and provide investors with valuable environmental information regarding publicly-traded companies.

The Index reflects a ranking methodology developed by the Israeli Ministry, based to an extent upon the  UK Environment Agency Operational Risk Appraisal (OPRA).

The Index is unique as it is an official comparative assessment of companies’ environmental performance by a government agency, intended strictly for the sake of public awareness.  It aims to reflect the overall environmental impact of the ranked companies, based on two primary parameters. The first is the potential impact of the company’s operations on the environment (for example: quantity of pollutants released into the environment; quantity of hazardous materials stored by the company, and more). The second parameter is the level of compliance with Israeli environmental laws and regulations. as reflected through violations of the law and enforcement actions taken against these companies.

The overall negative score is then balanced by a “positive” factor that  give credit for such  factors as environmental management frameworks and transparency policy of the company taking into consideration features such as voluntary reporting to the National Greenhouse Gas Registry.

Although the methodology the Index is based upon has evolved over the years, it remains controversial in Israel. While environmental organizations argue the Index should be expanded, the Industry Association’s stand remains that the Index potentially distorts corporate environmental performance  indicators. One such example is that environmental performance and compliance factors of subsidiary companies are in some cases attributed directly to the publicly-traded holding company being ranked, thus creating a false sense of the actual effect such factors may have on the ranked parent-company.

This illustrates that while the Index can be helpful in providing general and initial information on corporate performance of certain Israeli companies to the general public, its limitations are such that cannot obviate the need for comprehensive environmental due diligence in order to fully assess a company’s environmental performance and compliance levels.