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Rate the Raters 2018

By Christina Wong

In 2010 there were 108 sustainability ratings, rankings and indexes. Today there are over 600. Corporate ESG ratings and rankings have become a sometimes frustrating, but often necessary, part of the job for many sustainability professionals. But what value do they deliver and are there ways they can improve? SustainAbility will be exploring this question through our 2018 Rate the Raters research.

In May 2010, SustainAbility launched a research program to explore, influence and improve the quality and transparency of corporate sustainability ratings. Seeing recent renewed corporate and financial industry interest in this topic, SustainAbility hosted roundtable discussions across our offices in New York, London and San Francisco to explore the current ratings landscape. Here is what we heard:

Ratings are Complex and Time Consuming, but Have Merit

Five years since our last research, corporates and investors alike are still unclear which ratings are most accurate and valuable in their work. Corporate sustainability professionals struggle with the crowded, complex, costly and time consuming nature of ratings today, but also want to ensure the right data gets to the market. Amidst this struggle, ratings still have an important role to play in driving internal and executive level engagement in ESG issues and creating change within a company. ESG data and ratings also provide a critical foundation for asset managers and investors seeking investments that meet their return criteria and are also part of creating a more sustainable future.

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Are you spending adequate time doing rather than reporting? Too much ratings participation can keep companies from investing time in change.
San Francisco Roundtable

Questions Around Quality

The demand for ratings is there, but through our roundtables and additional interviews, we note questions around the quality of the ratings currently on the market. Both companies and investors comment that ratings often try to oversimplify a set of complex and nuanced sustainability issues into a single number. Some ratings don’t focus on what is material, which may mislead users, and others don’t make their methodology transparent which decreases credibility. Two of the most pressing criticisms we heard were that most ratings don’t adequately engage companies in the review or information gathering processes and that ratings analysts may lack the expertise and/or experience to deliver high quality, consistent results.

Rate the Raters 2018

With these concerns in mind, SustainAbility will be revisiting this topic with our Rate the Raters 2018 research. We plan to repeat our 2010 survey asking several hundred sustainability professionals which ratings they find most credible and will include a second survey targeted at mainstream investors. We will test ratings efficacy using a methodology informed by company, investor, rater and other stakeholder input and we will make recommendations as to how ratings producers and users can contribute to better analysis, outputs and application.

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Raters need to find out exactly what the business does; investors won’t buy research unless raters demonstrate they fully understand the companies. Too few do and quality varies because of that.
London Roundtable

Get Involved

If this topic is of interest to you, there are many ways you can get involved. Please contact Christina Wong at wong@sustainability.com to learn more.

About the author

Christina Wong

@wongctina

Christina is a Senior Manager in New York and a trusted advisor and facilitator passionate about driving better ESG analysis and integration. She has a BS in Finance and Marketing and MSc in Sustainability Management from the Earth Institute at Columbia University.