The TakeAway: In response to the boom in corporate sustainability ratings, SustainAbility releases the second report in its four-phase “Rate the Raters” project.
Last month, when JustMeans and CRD Analytics released their Global 1000 Sustainable Performance Leaders list (the latest in a raft of corporate sustainability ratings), Ethical Corporation founder Toby Webb dismissed it as “yet another opaque rating system” comparing “apples and oranges.” While this derision isn’t universal (clearly, there’s demand for sustainability ratings), a survey released last week confirms this skepticism.
SustainAbility and Globescan polled over 1,200 sustainability experts, and found they trust these ratings less than nongovernmental organizations (NGOs) and company employees “to accurately judge a company’s sustainability performance.” This week, SustainAbility piggybacked the survey findings with a report on the ratings phenomenon that addressed the debate over the methods and impacts of disclosure—and how to improve it. Their report joins other efforts to review and reform this burgeoning mini-industry.
First, some background: When I began this work in 1983, you could count on one hand the number of credible corporate responsibility ratings schemes—starting with the Sullivan Principles, the most prominent due to the dominance of the South Africa anti-Apartheid movement. The Sullivan Principles served as the prototype for subsequent ratings, including the MacBride Principles for Northern Ireland, the Valdez (now Ceres) Principles, and others.
Nowadays, it’s practically raining ratings, with many sponsored by magazines such as Newsweek (based on research from MSCI and Trucost), Corporate Responsibility (research by IW Financial) and Corporate Knights (research by Inflection Point Capital Management). Add to that the ratings that serve the sustainable investing community – such as the Dow Jones Sustainability Index and FTSE4Good – and you have a veritable deluge. But even the worst corporate offenders – Exhibit A: BP and the Deepwater Horizon rig explosion – can receive high sustainability ratings scores. What gives?
The credibility question animates this week’s SustainAbility report, part two of its four-phase “Rate the Raters” research program launched last May. Its goal: shed light on the universe of external sustainability ratings, while improving their quality and transparency. The project’s second phase (June to mid-September) concentrated on the current universe of sustainability ratings—including source of research, issue focus, whether or not methodology is disclosed. Key findings include:
- Of the 108 ratings examined, only 21 existed in 2000;
- “Universal ratings” spanning multiple issues, industries, and regions remain the norm, even though “it is difficult or impossible … to make meaningful comparisons across industries because issues manifest themselves differently (in terms of level of importance) for each industry; and
- Most ratings (over 60 percent) rely on information submitted directly to them, “thereby rewarding companies with the greatest capacity to respond to ratings requests rather than those with the best performance.”
Phase one (April to May 2010) of the project covered the evolution of the ratings agenda over the past ten years, and identified key trends and challenges, such as the wobbly focus on the “economics” leg of the triple bottom line (a coin termed by John Elkington, SustainAbility’s founder; the other two legs represent environmental and social concerns), and whether – and how – ratings are moving us toward a sustainable future.
Phase three (October to December 2010) conducts a deeper analysis of a select group of ratings schemes, both to understand how they approach the evaluation of sustainability performance, as well as how they address the challenges above. The final phase (December 2010 – January 2011) turns to the future of sustainability ratings, and how best to meet the demands and needs of ratings producers and users.
The SustainAbility project complements the work of the Global Initiative for Sustainability Ratings (GSIR), launched last April. Its goals: design and disseminate a generally-accepted sustainability performance ratings framework. A project of Corporation 20/20, GSIR intends to use a “transparent, multi-stakeholder process that uses a Web 2.0 platform which complements existing ratings tools”.
In the end, as the SustainAbility survey concludes, the ratings process is essential and continues to add value. However, to assure credibility, ratings organizations need to improve both the quality and transparency of their ratings process, consistent with widely accepted academic standards.
