What is the Value of Corporate Sustainability Ratings?
Over the last decade, there has been an extraordinary growth in the number of ratings and award schemes designed to measure corporate sustainability performance. While these rankings play an important role in improving corporate performance, companies are struggling to keep up, and many question the time and effort required to respond to raters’ requests for information.
Is it all worth it? Which ratings, if any, do people pay attention to? How much does a company’s score influence decisions among sustainability professionals, investors and others?
The latest phase of SustainAbility’s Rate the Raters project seeks to answer these questions. Together with GlobeScan, we recently polled 850 sustainability experts across 70 countries and multiple sectors. These experts have a minimum of three years experience, with 60% having a decade or more. Coming just ahead of a new wave of ratings’ results – Carbon Disclosure Project (CDP), Dow Jones Sustainability Index (DJSI) and Newsweek Green Rankings to name a few – the findings may be somewhat sobering.
Trust me, I’m a rater
Sustainability experts were asked who they trust most to judge a company’s sustainability performance. Respondents have most faith in NGOs, but ratings come a close second – well above governments, journalists and consumers.
There were no real surprises when experts identified the ratings they’re most familiar with: DJSI and CDP take the number one and two slots respectively, followed by FTSE4Good and Bloomberg. These ratings are also among those that experts put most trust in, with CDP (65% credibility), FTSE4Good (54%) and DJSI (53%) leading the pack.
But trust is neither blind nor absolute, and before leaders get too comfortable they should reflect on this: when asked if each rating is very credible, none score higher than 16%. So where are ratings falling short of expectations?
Why should we believe you?
Nearly all respondents (94%) believe that the objectivity and credibility of data sources is critical to how much they trust a rating. Raters would be wise to pay attention to this, as far too few of them disclose specific information sources, or the ways in which they balance information from different sources – for example company-reported information versus NGO campaigns.
Disclosure of methodology is the second most important driver of credibility (88%). On one hand this is obvious: how can individuals have confidence in a score without knowing how that score is computed? The challenge for raters lies in responding to this need for greater transparency without revealing the intellectual property upon which they depend.
One trust factor that has grown in importance is the need to focus on material issues (up from 69% to 74%). This has important implications for how raters work; for example they may need to spend more time analysing companies and develop greater sector expertise in their staff.
We think you’re overrated
Given the trust issues that exist around ratings, it is perhaps not surprising that ratings are not being used as much as we might expect.
On the bright side, 64% of experts polled say they use ratings at least once every few months to gain intelligence on a company’s sustainability efforts, and 57% use them with similar frequency to benchmark companies against their peers.
But when it comes to actually using ratings to influence decisions – investment, purchasing and so on – the story is not so good. A hefty 56% of experts either never use ratings for this purpose, or do so at most once a year. For companies investing considerable effort in responding to raters’ requests, this figure is likely to be disappointing.
Tell me what to do, I can change
Nearly half of those polled (48%) believe that rankings are improving corporate sustainability performance, while only 15% think they are not.
Yet, “improvement” is relative, and respondents were asked which three things raters should do to drive the biggest corporate sustainability improvements.
The most popular response (selected by 66% of experts) is for raters to make their results/analysis fully available to stakeholders. This isn’t surprising, and of course comes back to the issue of trust: if you want us to act on your conclusions, tell us how you arrived at them.
Where do we go from here?
The consensus among sustainability experts seems to be that ratings deliver real value now, but that they could be doing more. To get companies to raise their game, raters need to start thinking about how to raise their own.
This article originally appeared on the Guardian Sustainable Business website.
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