Posts tagged ‘environmental social and governance’
Albert Einstein once said that not everything that counts can be measured and not everything that can be measured counts. While I remain a dyed-in-the-wool free market capitalist, the measurement systems we’ve used to date have gotten us in a hole with disasters economic, environmental and political.
In 2000 the world had 21 sustainability-related ranking systems; we now have more than 100. As a result many folks now want to know how to prioritize the “real” rankings from the “rubbish”.
As Executive Director of the Corporate Responsibility Officers Association I represent you: the responsibility and sustainability professional. I know the difficulty different reporting regimes pose. I also know how hard it is to rate companies because I serve on the Methodology Committee for Corporate Responsibility Magazine’s 100 Best Corporate Citizens List. As a result, I have discerned a few hallmarks of the better rating systems. Here’s what I can offer as a guide to prioritizing ratings:
- Transparency. Their methods, criteria, and decision-making should be public. Any commercial relationships between the rater and the firms on its list should be clearly disclosed as well.
- Consistency. While evaluation criteria continue to evolve, the rating should have some constancy year-over-year. The criteria should also be applied evenly to all companies in the rated universe.
- Relevance. A list should relate to your company’s industry, brand or strategy.
- Acceptance. Pay more attention to lists that have broad acceptance and/or use widely accepted criteria like the Global Reporting Initiative.
- Prediction. The most effective rating systems will predict future performance. This is the “holy grail” and will likely remain elusive for at least another 10-15 years. To be predictive a rating needs to incorporate a full business cycle’s worth of data, typically 30+ years. No rating system that I know of has been around that long.
What do you think? Are these the right criteria for evaluating information requests? When it comes to the flood of sustainability surveys, what is your strategy for responding? Which do you respond to? Why?
Richard Crespin is the Executive Director of the Corporate Responsibility Officers Association and chair of the upcoming COMMIT! Forum on Sept. 26-27 in New York. To participate in the conversation about the “New Rules for Disclosure” visit http://www.commitforum.com/index.php/agenda/.
Thanks again to all of you who joined us in Fort Lauderdale for the “Measuring Sustainability” conference this week. From my perspective, we had a successful day, in that we increased awareness of the issues and we shared ideas for improving the environmental, social and governance (ESG) reporting process.
The conference also highlighted some practical advice you can use to build a business case for publicly communicating your sustainability story:
- Understand the value of disclosure to your business:Today, nearly one out of every eight dollars under professional management in the U.S. is involved with some strategy of socially responsible investment (SRI), according to the Social Investment Forum. Since 2005, SRI assets have increased by more than 34 percent to $3.07 trillion. ESG research firms are therefore asking more questions because their clients (investors) are asking them for that information. As the lead survey responder within your company, it’s important to take the time to discuss the value of disclosure with your C-Suite and with your internal teams.
- Create a process for vetting requests: Assemble a committee representing all those involved with responding to outside requests. Understand how much time and transparency your company is willing to commit. Then figure out how to collect the information and who will take the lead in managing the request. Remember that if the information request has an enterprise-wide impact, corporate communications MUST be involved.
- Do your research, too: When you receive a survey, learn as much about the requesting entity as you can. Are they shareholders? Are they investment managers? Are they research firms? Also find out how the information is used, who the audience is and the influence the resulting products have. If possible, ask members of your network to learn about their experience with working with that firm.
- Be strategic: While it’s important to be responsive to your stakeholders and investors, you don’t have to be all things to all people. Identify which audiences most matter to your business and participate in the surveys that reach that audience. For some companies, investors may be the most important audience; for those with strong consumer brands, on the other hand, the more mainstream (published) rankings might matter more.
- Build relationships: Dialogues are always better than surveys. ESG firms want to understand how your business operates, so if there’s something you think they’ve misunderstood, don’t be afraid to pick up the phone. And if you think they’re asking the wrong questions, tell them why. They want to know which metrics are material to your business, but they need your input.
- Be consistent: Remember that you’re in this for the long-haul, so develop a solid strategy and stick with it.
What advice would you add to this list? What strategies have you developed to manage the external requests for information?
NAEM’s “Measuring Corporate Sustainability” conference kicked off today with a thoughtful discussion of SustainAbility’s Rate the Raters research, a year-long study to improve the transparency and quality environmental, social and governance (ESG) ratings.
With more than 100 ratings out there, Manager Kyle Whitaker offered the following advice to companies that are looking to develop their strategy for engaging ESG research and rating firms:
- Prioritize and invest in the ratings that deliver value to your business: The days of responding to dozens of information requests are over, Whitaker said. To make this process manageable, companies should first understand, who the audience or intended audience is. It’s also important to understand how that audience is using the data.
- Ask “What’s in it for me?”: It’s important to understand what the benefit to a company before getting started.
- Manage expectations internally: EHS and sustainability leaders need to do a better job explaining a particular rating to both the C-Suite as well as to those who supply the data. Explaining what the rating is, why the company is participating and what participants may expect from the rating is an important part of improving the value of the reporting effort internally.
- Focus on public disclosure: 63 percent of ratings depend on public disclosure, according to Whitaker. Participating with the Global Reporting Initiative (GRI) is a valuable way to disseminate this information and companies should make that a priority if they haven’t already done so.
- Set the agenda: Business leaders have an important role to play in the future of sustainability analytics. Companies should begin engaging ESG researchers by providing feedback on which metrics are most material to them; it’s also worth noting which metrics they don’t report internally.
With all the requests for information, how do you filter the ratings your company participates with?