“I conceive that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things.” — Ben Franklin
Why should companies bother with ratings? They show leadership and scale. This second-wave afternoon workshop on day 2 of New Metrics ‘14 delved into this concept in detail, revealing insights into recent developments in ESG ratings, and what they mean for companies and brands.
Mark Tulay from GISR hosted this session, noting that one of the biggest challenges is that ratings focus on policies and procedures, rather than the new frontier of performance and context. Tulay said GISR is launching the Center for Rating Excellence, which will help to drive transparency in ratings and foster continuous improvements, presented in an equal playing field. Baseline information on the framework, hub, labs, etc will be available to assist companies in the reporting process, along with a “Principles for Rating Excellence” toolkit.
The ‘next frontier’ for ESG research and ratings is the ability to describe the market element (such as materiality or KPIs) and to show the movement from barriers to breakthroughs. An example of this is when benchmarking ratings can move from index-based to sector-based metrics.
Andrew Park, Senior Sustainability Strategist at Bloomberg, dove deeper into financial sector and investment practices, defining where the value of ratings lies. He identified that sustainable finance programs emerge from two things: strategic deployment of philanthropic resources (product), and deep engagement with eternal NGO and nonprofit partners (people). ESG data incorporated into the Bloomberg terminal is able to power many analytic tools used by the investment community, and there continues to be an upswing in the use of that data to make investing decisions.
Next, Steve Leffin, Global Sustainability Director at UPS, described how ratings and the accompanying assurance has helped him to derive deeper metrics from departments that might otherwise be hesitant. “We reserve the right to be smarter this year than we were last year,” he said, and a deeper understanding of ratings helps to make that a reality. Many of the metrics on which UPS finds it challenging to report cause internal conversations to happen that might not otherwise have occurred — ultimately resulting in a more efficient and profitable business model.
A final question was posed to the panelists: Do investors/stakeholders actually care? Park did not hesitate to affirm that they do — there is a mental shift in the investor community, and they know they can’t afford not to pay attention.
“We ultimately want ratings to be as commonplace as financial statements,” Tulay added.