Corporate Sustainability Ratings: New Global Framework Proposed
by Michael Connor
Which Fortune 500 companies have the best records for reducing greenhouse gas emissions? Which have noteworthy policies and practices for preventing human rights abuses in their supply chain? Which have outstanding records for encouraging employee diversity? And which companies constitute the 10 best in the world for overall sustainable business practices?
Those types of questions are being asked more frequently these days by a growing number of consumers, investors and regulators. Problem is, depending on which sustainability ratings list you consult for information, answers to the questions can vary dramatically.
Citing the “continued confusion, uneven quality and opacity” of proliferating ratings for corporate sustainability programs, a new non-profit initiative has been launched to develop a generally-accepted “framework” for sustainability ratings worldwide.
“GISR is a global non-profit, mission-driven program aimed at moving markets to the advantage of true sustainability leaders,” the organizations said. “It seeks to achieve for sustainability ratings what the Global Reporting Initiative (GRI) strives to achieve for sustainability reporting, namely, creation and continuous enhancement of a framework that is designed and managed as a public good to advance the global sustainability agenda.”
The initiative seeks to bring some order to the burgeoning industry of corporate sustainability ratings, which includes market indices (such as the Dow Jones Sustainability Indexes and FTSE4Good Index Series), mainstream media listings (Newsweek’s Green Rankings and Fortune’s Most Admired Companies) as well as long-standing social investor rankings (the KLD 400 Social Index) and other sustainability lists.
An October 2010 report by the consultancy SustainAbility examined 108 different ratings systems – of which only 21 existed in 2000.
According to the SustainAbility report, a “growing number of companies are linking executive compensation to performance on ratings. Major mainstream asset managers are examining company sustainability performance as part of their investment decision making. And, slowly but surely, citizens and consumers are starting to wake up to these issues and are turning to ratings for actionable information. While these are all welcome developments, increased attention means ratings must be able to demonstrate that they are fair, accurate and credible.”
In announcing the GISR initiative (PDF), Ceres and Tellus said the potential of sustainability ratings “has been hampered by the proliferation of the field into scores of raters each with its own, usually proprietary, methodology; lack of transparency regarding the structure and implementation of methodologies; uneven coverage of key, material sustainability issues; inefficiencies and survey fatigue on the part of rated organizations; and, in some instances, conflicts of interest whereby raters play multiple roles in their relationship with rated organizations.”
Its organizers said GISR will work "to bring coherence, transparency and coordination to sustainability ratings" by designing a generally-accepted framework that:
- Accelerates the infusion of sustainability content – initially in public equities and later in bonds, real estate and other asset classes – into mainstream financial ratings;
- Moves existing sustainability ratings toward a core set of principles and process/performance content;
- Serves as a stand-alone, dynamic framework for ratings users.
Ceres and the Tellus Institute said they are the “principal conveners” of GISR but will be working with various partner and collaborating organizations. “In its initial phase spanning approximately 18 months, a multistakeholder Steering Committee will oversee GISR,” they said.
GISR’s schedule calls for a beta version of its sustainability ratings framework about 12 months after launch and a Version 1.0 approximately 18 months after launch.
“GISR’s overarching goal is to bring sustainability ratings into the mainstream,” the organizers said. “This will occur through uptake by pension funds in RFPs, investment managers in portfolio decisions, government agencies in procurement initiatives and NGOs in advocacy and partnership initiatives. Over time, through a process of convergence and integration, we believe all ratings—financial or otherwise— across all asset classes should be infused with sustainability content.”
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Tagged as: Ceres, Dow Jones Sustainability Indexes, Fortune's Most Admired Companies, FTSE4Good Index Series, Global Initiative for Sustainability Ratings, Global Reporting Initiative, KLD, KLD 400 Social Index, Newsweek's Green Rankings, Sustainability, Tellus Institute
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