Responsiveness should never be a substitute for performanceNovember 2010
On the face of it, the conclusion from recent research that sustainability ratings favour companies that are most responsive to data information requests, rather than those that are actually the best performers, should come as no surprise to anyone.
Yet, as far as EP can ascertain, this is the first time the explicit point has been made as the result of a thorough study of the sustainability ratings landscape – as distinct from the anecdotal views of observers in the field. This lends the findings of the second phase of the SustainAbility consultancy’s four-part Rate the Raters project (see page eight) particular weight.
SustainAbility looked in depth at 108 ratings – provided by bodies such as Vigeo, oekem and Bloomberg – that attempt to measure the social and environmental performance of businesses around the world. It found that more than 60 per cent depended wholly or in part on information submitted by companies to ratings organizations, and that ratings based solely on public information have become more common over the past decade, accounting for one-third of those covered by the study. As a consequence, companies that do not respond to data requests may well fare worse than those that do, though in fact their claim to sustainability is stronger. Simply by inference, ‘if you don’t broadcast it, you’re not doing it’.
SustainAbility conludes that this state of affairs raises the prospect that ‘as the number and depth of ratings increases over time, raters may reward those companies with greatest capacity and appetite to respond to ratings requests rather than the companies with the best performance’. This is clearly not a satisfactory situation. Ratings must reflect true practice, not merely what is perceptible. Only thus are they wholly valid and useful.
Two lessons arise from this research – one for companies, the other for ratings agencies. For the former, the message is that they must properly tell their story, in a way that neither hides their light under a bushel nor can be dismissed as public relations puff. They owe that to all their stakeholders.
The agencies, for their part, must not forget that their authority rests entirely on the soundness of their output. Ratings cannot be the simple sum of what the raters are told and what is in the public domain. Proper research is required. This might seem obvious, but apparently needs saying. Certainly it is not easy, and it costs money to gather the data, which may tempt some agencies to settle for less. But if these agencies do not uphold high standards, they, too, will be the losers. Their clients will migrate to those that do.
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