Ethical Performance
inside intelligence for responsible business


'lively' rating sector begins to reach maturity

December 2006

Nearly 60 organizations now formally assess the social and environmental performance of companies.

The Bertelsmann Foundation, a German social welfare research organization, has identified 58 rating organizations worldwide that 'measure corporate sustainability or CSR', and says the market is maturing after several years of 'lively' expansion. Recent mergers and acquisitions in the sector can be taken as 'a reliable hint that [the] market is transforming into more established structures', it says. There is no estimate given of the overall value of the market.

The foundation believes the field is now at a point where 'even conventional investment research and credit ratings have become aware of CSR rating schemes and [are] making efforts to integrate them into their standard researches and credit rating schemes'. The review does not include Standard & Poor's, Moody's and Fitch Ratings, the three biggest international rating agencies, because they are not yet sufficiently active in the field, although CoreRatings, which is majority-owned by Fitch Ratings' owner Fimilac and is thought to be the only CSR rating agency in which any of the three have an interest, is covered.

Most of the agencies are commercial bodies such as oekem and Covalence or in-house research departments at banks but some are non-profit groups, such as Co-op America.

Who is who in corporate social responsibility rating found 'a high degree of individuality' among models used by agencies to measure sustainability, in contrast to credit rating in general, where there is a 'strong consensus' on what metrics to use. It says this is unsurprising as many of the issues covered are intangible and not easily measured. Almost all the rating agencies refer to international standards and conventions such as the OECD Guidelines for Multinational Enterprises.

Most take a best-in-class approach when assessing large listed companies. Private companies and small and medium-sized publicly owned businesses 'remain largely unexplored', mainly because there is little demand for such information from institutional investors, who are the agencies' main clients.

The agencies are mostly in Europe and have between ten and 15 staff, but some have up to 70. Several work in loose alliances to offer a global service and a range of products.

Antoine Mach, head of direction and research at Geneva-based Covalence, told EP: 'The CSR rating market is maturing ... but we can expect more growth, considering the [increasing] use of such ratings by financial analysts and asset managers. While the niche market is maturing, the integration of intangible measures into the financial tools used by institutional investors is at an early stage.' He added that 'methodological improvements' would be needed to satisfy mainstream customers.

Nine new rating bodies have emerged in the past two years, mostly small start-up businesses. Others have left the market, among them Ecobalance and the Humanix Ethical Index, both based in Sweden.

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