Part 4: Data assessment and ratings

 

EC research brief

This task will focus on products assessing companies’ sustainability, either on the aggregated (ESG) or individual factors level (like E, S, or G) in the form of a rating, score or ranking.

This task will not apply to categories of products which do not entail the attribution of a rate, score or ranking number. The choice of products will be carried out in co-operation with the contracting authority.

The study will analyse main methods of measuring sustainability and the transparency of this process as well as of methodologies. The study will also analyse whether methodologies can be biased, and what are the consequences of the bias. It will help to understand reasons for a low correlation between results of assessments of the same company done by different providers.

The study should analyse how providers carry out their assessments, in particular:

  • what assumptions and criteria they use to measure sustainability;
  • whether they use standards (administrative, legislative, self-regulation, regional, global etc.) or taxonomies;
  • the extent to which they differentiate sustainability measurements across economic sectors;
  • the frequency of reviews of methodologies;
  • the level of disclosure and transparency of methodologies to issuers and investors;
  • frequency of updates and publications of ratings and their consequences.
    The study will also analyse pros and cons of increasing the level of transparency of methodologies.

Do asset managers care about ratings?  Do companies think asset managers care about ratings?  (Why) is there a perception gap?

  • EC interest: Contextual
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Outstanding questions

We would like to know:

  • From asset managers, how they understand and use ESG ratings specifically - as opposed to the data that goes into ratings and the contextualising information that is provided alongside them
  • From companies, how they understand ESG ratings and how they think they are used by investors

What we (think we) already know => Context

It appears to be the case that:

  • Companies spend a lot of time worrying about consolidated ESG ratings – presumably because of the impact that they believe that these have on asset managers and other stakeholders.
  • Asset managers, we suspect, are much less interested in consolidated ESG ratings than the companies assume. They tend to be much more interested in the underlying data and in the contextualizing market information that goes along with the ratings.*
  • It appears that, to a large degree, ESG ratings (as opposed to ESG data) have achieved a profile that substantially overstates the extent to which they are used in practice
  • We believe there is also confusion about what the ESG ratings actually measure and there may be differing opinions among and between investors and companies.

* This evaluation is corroborated by a short survey we have already undertaken in the execution of this work.

To what question is a particular ESG rating / score an answer? Do ratings agencies have a clear idea of the sustainability context that they are targeting?

  • EC interest: “The study will analyse main methods of measuring sustainability” … [by investors] “What assumptions and criteria … [do ratings providers] … use to measure sustainability [and] “whether they use standards (administrative, legislative, self-regulation, regional, global etc.) or taxonomies [to define ‘sustainability’]”
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Outstanding questions

We have already asked respondents about their interpretation of sustainability.  In this section, we will focus on (and ask) how ratings agencies connect sustainability to investment decision-making via ESG ratings.

What we (think we) already know => Context

Do ratings measure sustainability?

The EC’s Call for Tenders assumes that ESG ratings set out to measure sustainability.  (“The study will analyse main methods of measuring sustainability”)

We question, however, whether ESG ratings agencies have articulated precisely that objective – or indeed whether indeed they have articulated a precise objective for their ESG ratings at all … or have allowed the market to assume an objective.

We think it is more likely that ratings set out to measure the interface between sustainability exposure and (a somewhat undefined measure of) corporate financial performance (where the nature of that interface is also somewhat ill-defined and varies between different ratings providers).

The latter (more vague) approach would certainly be commercially-astute positioning as it would allow different customers to assume different applications to ratings dependent on their own investment needs:

  • If a rating had a precise objective and measured the likelihood of a sustainability-related default on debt over a 12 month period, it would limit its relevance to (primarily) fixed income investors.
  • If, by contrast, the objective of a rating is vaguer (e.g. to measure sustainability-related risk and opportunity) it can be relevant (albeit less precisely so) to equity investors and fixed income investors of differing time horizons (essentially all investors)

It follows, of course, that a vague articulation of the objective of a rating makes it somewhat inevitable that the outputs of ratings will differ.

What exactly do ratings measure?

To understand, what ESG ratings are and what they measure, we need to assess whether ratings providers have articulated:

  • What sustainability is in a practical industrial and investment context (and whether this is even possible to do)
  • How exactly their ESG rating maps to that definition of sustainability
  • What the precise intent of their ‘rating’ is

To illustrate, the following questions below are subtly but significantly different questions:

  • How sustainable is this company?
  • How exposed is this company to a transition towards a sustainable economy?
  • How effectively is this company preparing for the transition to a sustainable economy?
  • What impact would the transition to a sustainable economy have on this company’s share price?

Notably, ratings agencies that focus their ratings on different questions (or different aspects of a central but vague question) are likely to deliver different grades of rating for the same companies.

Variation around the definition of sustainability

We will ask ratings providers (and asset managers, listed companies and others) whether they have articulated and follow a specific definition of sustainability.

A priori, there are three reasons why we do not expect a single definition of sustainability to operate across different ESG ratings firms:

  • Across society, there is no universally accepted definition of sustainability that has been agreed and operationalised to the level of every industrialised sector.
  • ‘ESG’ and ‘Sustainability’ do not map perfectly onto each other
    • Sustainability does not encompass ‘corporate governance’
    • ‘ESG’ does not explicitly recognise ‘economic development’
  • Most sustainable investors adopt strategies that require them to focus on sustainability issues that enhance (or do not harm) returns. The sustainability issues tackled by investors are therefore that subset of sustainability issues that can deliver financial returns to shareholders. Sustainability issues with negligible or negative impact on shareholder returns are deprioritised or tackled via engagement tactics rather than investment tactics.

No universal definition of sustainability that is operational at sector level

We note that:

  • the EC defines sustainability as aligned to the Bruntland Commission definition and with strong reference to the UN Sustainable Development Goals.
  • gender equality in every workplace would be a feature of a fully sustainable society.
  • there is a huge definitional gap between the top-level definition and the specific indicators that should be applied at the level of individual economic sectors.

At the governmental level, significant efforts are underway to bridge this gap with practical guidance (the EU Taxonomy being a significant step in this direction).

However, the gap is still significant.  To illustrate, even on the single issue of climate change, there are material differences of opinion across even individual countries and Europe, let alone the world, on the role to be played by nuclear power in energy systems.

As such it would not be surprising if individual research firms (whether investment related or other) developed different interpretations of sustainability at sector level and sought different indicators to measure this.

ESG raters as ‘price finders’ for sustainability

Although no single definition of sustainability has been developed at a level that is practically operational within capital markets, ESG ratings firms are continually working to develop and refine such definitions.  As such, even if they do yet reached a final answer, the process that they go through to improve their understanding of what sustainability means in practice means that they fulfil (by default rather than intent) a critical social function: improving society’s understanding of what sustainability means at sectoral level.

In fact (outside government) we cannot think of a single set of economic actors that have done more (through a ten year process of trial and error and steadily improving iterations) to develop intra and inter-sectoral definitions of sustainability.

We must not, of course, discount various aspects of bias noted above (notably towards corporate governance, away from economic impact and towards financial impact).  Notwithstanding these, however, we suspect ratings agencies may be some of the most engaged private sector participants in articulating sustainability.

Does divergence matter?

Academic research has demonstrated a significant divergence between the ESG ratings produced by different agencies.  The fact that this research was undertaken, is reported as surprising and often used to argue that ESG ratings are flawed implies an expectation that ratings should be consistent.  This may be derived from the fact that credit ratings - from different credit rating agencies - are broadly aligned.

It overlooks, however, the fact that equity (and fixed income) investment recommendations from ‘sell-side’ firms and other investment research providers are not aligned.  Indeed, the efficient functioning of the whole equity market depends substantially on the fact that these research providers disagree with each other on the right ‘valuation of a stock.

To understand, therefore whether it is realistic or desirable for ESG ratings from different providers to be consistent, we must explore the fundamental intent behind them and understand whether that intent is commonly understood.

Intent

We will ask:

  • Is the fundamental purpose/intent of an ESG rating defined and understood by each individual rating provider?
  • If so, is the purpose / intent of ESG ratings defined consistently between providers?
  • Is the purpose / intent of ESG ratings understood by the subjects of (and data suppliers to) such ratings (companies)?
  • Is the purpose / intent of ESG ratings understood by the clients of such ratings? (asset managers, asset owners and benchmark administrators)

In doing this, we will need to consider two potential sources of variation:

  • Around the definition of sustainability
  • Around the intended way of linking sustainability to investment outcome

Do ratings agencies define sustainability in the same way?

Specifically, we ask whether they define sustainability in the same way:

  • As each other?
  • As their clients?
  • As the EU?
  • As the EU … and in the terms of the EU’s forthcoming taxonomy?

As discussed above, it is highly unlikely that such definitions will align.  However, this is subject to further testing.

Linking sustainability to investment outcome

We now turn to the question of HOW sustainability is linked to WHAT investment outcome.

We start with the working definition that an ESG rating is a semi-quantitative assessment of the ‘sustainability exposure of a company or other issuer’.  We have discussed above how discrepancies may arise between different perceptions of sustainability and between any societal definition of sustainability and an investor’s definition of ‘ESG’.

We now turn to the potential definitions of ‘exposure’ in a bid to respond to the EC’s desire that we explain “the objectives pursued (e.g. measure of risk, impact, performance, compliance with standards, other) by the sustainability-related products/services”;

It is clear that integrated sustainable investment research has the objective of using sustainability-derived information to adjust an investment recommendation.  Equally, it is clear that stimulus sustainable investment research aims to support this objective but does not complete the process.

However, the way that ‘ratings’ influence investors is less clear and varies between active and passive investors.  Upon receipt of an ESG ratings report, active investors might:

  • Buy or sell a stock
  • Become more aware of the conditions under which they might want to buy or sell that stock
  • ‘Engage’ with a company to encourage the company to adopt more (or less) sustainable practices
  • Report to clients on the (financial or sustainability exposures of that stock)
  • Report to clients on the sustainability impact of that stock

Which action is usefully informed by an ESG rating depends on the underlying intent of the rating and typically a translation process whereby the rating is (or isn’t) converted into a financial effect.

If an ESG rating is… [     ]

… a translation [     ] is required …

… to enable …

… such a rating can be considered a(n)…

… a measure of future financial performance of the company …

… from the rating category to a target price impact …

… asset managers to buy or sell a stock or to become more aware of the conditions under which such action would be required.

Financial performance measure

… a measure of exposure (to a single or multiple sustainability factors) …

… from sustainability exposure into financial exposure and to place a likelihood (risk) on that factor crystallising into a real impact …

… asset managers to buy or sell a stock or to become more aware of the conditions under which such action would be required.

Exposure measure

… a measure of the level of social or environmental activity underway at the company…

…to a metric of how much the company’s performance is likely to improve/deteriorate as a result…

… asset managers to buy or sell a stock or to become more aware of the conditions under which such action would be required.

Activity measure

… a measure of compliance with specific regulations or accepted business practices…

from compliance measurement into risk metric for probability and financial impact of non-compliance…

… asset managers to buy or sell a stock or to become more aware of the conditions under which such action would be required.

Compliance measure

       
       

… a measure of the sustainability impact …

… from the rating category to a measure of sustainability impact**

… asset managers to ‘engage’ with a company or to report to clients on the sustainability impact of that stock

Impact measure

** Of course, no such single measure of inherent sustainability exists in the ‘real economy’.  Typically, such impact measurement would only be linkable to a single issue (such as climate change) and is, therefore, better delivered directly from assessing exposure against a stream of data on that issue specifically.

How do ESG agencies define the intent of their ratings

Below, we have categorized the ‘intent’ of the ratings from different providers.

Ratings provider

Our ratings …

Our ESG ratings enable a client to …

Ratings type

Product notes

ESG AGENCIES

 

 

 

 

Arabesque S-Ray

“Arabesque S-Ray® provides an industry-specific assessment of companies’ performance on financially material sustainability criteria (ESG Score).”

 

Preparedness measure

 

Beyond Ratings

“Integrating risk & sustainability to drive sovereign investments”

“Beyond Ratings has pioneered a new risk methodology assessment combining ESG factors and financial risk. “

 

Financial Performance measure

 

FTSE Russell

 

“FTSE Russell’s ESG Ratings and data model allows investors to understand a company’s exposure to, and management of, ESG issues in multiple dimensions.”

Preparedness measure

 

Ideal Ratings

Provides prospect investors with complete insight of a company’s adherence to guidelines, to the environment, to the society and corporate governance (ESG).

 

Compliance measure

 

Inrate

“The ESG Impact Assessment produces an absolute sustainability impact rating. This factors in whether, on a net basis, companies satisfy basic societal needs in a more – or less – sustainable way. The ESG Impact Rating provides an absolute measure of a corporation's sustainability impacts.”

 

Impact measure

 

ISS-ESG

“ESG ratings on companies, countries and green bonds provide investors with the in-depth insight to effectively incorporate sustainability in their investment decision.”

“Our research is instrumental in helping investors minimize ESG risks, comply with evolving regulatory and stakeholder requirements and seize opportunities.”

Exposure measure

 

MSCI

“MSCI ESG Ratings aim to measure a company’s resilience to long-term, financially relevant ESG risks.”

 

Preparedness measure

 

Sustainalytics

 

“Sustainalytics’ ESG Risk Ratings … are designed to help investors identify and understand financially material ESG risks at the security and portfolio level.”

Preparedness measure

 

Vigeo Eiris

“The methodology measures the relevance of companies and organisations’ commitments, the efficiency of their managerial systems, their ability to manage risks, and their performance on all environmental, social and governance responsibility factors.”

 

Preparedness measure

 

SELL-SIDE BROKERS

 

 

 

 

Deutsche Bank (Investment Research)

   

Does not appear to be a rating

“α –DIG is a tool that crunches big data using text mining techniques to help investors understand the financial market value of company intangibles.”

“to quantify the importance of ESG issues and other company intangibles such as human capital, innovation, brand value, management quality and environmental sustainability.”

DATA PROVIDERS

 

 

 

 

Bloomberg

     

“Bloomberg makes ESG data relevant and actionable for financial market participants by collecting, verifying and sharing this data from more than 11,500 companies in 83 countries. Investors incorporate ESG data into their financial analysis, generating critical insights into risks and opportunities in the evolving global economy.”

Refinitiv

“ESG Scores from Refinitiv are designed to transparently and objectively measure a company’s relative ESG performance, commitment and effectiveness across 10 main themes (emissions, environmental product innovation, human rights, shareholders, etc.) based on company-reported data”

 

Preparedness measure

 

FOR IMPACT OR GRANT-FUNDED RESEARCH PROVIDERS

 

 

 

 

CDP

“CDP’s annual A List names the world's most pioneering companies leading on environmental transparency and performance. Our scoring measures the comprehensiveness of disclosure, awareness and management of environmental risks and best practices associated with environmental leadership, such as setting ambitious and meaningful targets.”

 

Activity measure

 

FAIRR

   

Activity measure

“The world’s only assessment of meat, dairy and farmed fish producers on material environmental, social and governance risks.”

SPECIALIST RESEARCH, ENGAGEMENT OR DATA BOUTIQUES

       

RepRisk

“Gain an in-depth look at the ESG risk exposure of a company”

 

Exposure measure

 

Trucost (S&P Global Group)

   

Preparedness measure

“We provide the gold standard carbon and natural capital investment metrics that financial institutions need to assess the risks and opportunities presented by climate change, drive innovation, and capitalize on the transition to a low carbon, resource efficient economy.”

Transition Pathway Initiative

   

Preparedness measure

Assesses companies' preparedness for the transition to a low carbon economy

TruValue Labs

   

Financial Performance Measure

“A robust, timely set of ESG data and analytics on intangible factors that have a material impact on company value.”

OTHER (CORPORATE-FOCUSED)

       

Corporate Knights

   

Preparedness measure

“An index of the Global 100 most sustainable corporations in the world.

The ranking is meant to be representative of business sustainability in the current socio-economic context.”

S&P DJI/SAM

   

Preparedness measure

“Global sustainability leaders”.

“This process helps better detect those companies that are well-positioned to address future sustainability-driven challenges and opportunities. …the CSA encourages consistent disclosure practices around both currently relevant sustainability themes and emerging forward-looking sustainability issues that may have a financially material impact on companies”

         

How strong is the correlation between different ratings of the same company by different providers?  If weak, why is this?

  • EC interest: "The study will help to understand reasons for a low correlation between results of assessments of the same company done by different providers”
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Outstanding questions

We have questions for all industry participants about the correlation (or lack of it) between different ESG ratings and possible reasons for this.  We also want to explore whether difference is regarded as a strength or a weakness in the ratings landscape.  Finally, we ask whether ESG ratings are considered to be more like credit ratings or equity investment recommendations.

What we (think we) already know => Context

Correlations between different ESG ratings tend to be weak

Various academic studies have already been conducted into the level of variation between ESG ratings including these:

Additionally, a number of white papers have been published and internal work has been undertaken by asset management firms (including RBC Global Asset Management and others) into the strength of correlation between ratings provided by different providers.

The papers that we have seen have generally found the correlation to be weak.

But is this a strength or a weakness?

We are less clear, however, whether this lack of correlation should be regarded as a strength or a weakness in the market.  Typically studies on the low correlation between ratings are presented as indicative of deficiencies in those ratings.  This position assumes that ESG ratings purport to be representing the same inherent truth about the company being rated - in the same way as all credit ratings aim to convey the likelihood of default on a given instrument or by a given issuer.

However, ESG ratings are also widely used by equity investors.  In such circumstances, we should consider potential parallels between ESG ratings and equity investment recommendations.  In this latter case, a variation between different recommendations is essential to the functioning of the market and to the process of ‘price finding’.  Such an interpretation sees different ESG ratings as critical to ‘price-finding’ for sustainability.

We know that there is a difference of opinion within the industry and across the value chain about whether it is a good thing or a bad thing that different ESG ratings providers accord different ratings to the same companies.

  • Investors who regard a high correlation to be desirable tend to do so out of the sense that ratings should strive to be a consistent and objective 'truth' or an unimpeachable reference point.
  • Investors who regard a high correlation as impossible or even undesirable tend to regard a rating as 'one analyst's opinion'. They tend to value differences of opinion from third party providers as these help and challenge them to form their own thesis and view of the company. They tend to be more sophisticated sustainable investors who present themselves to clients on the basis of their ability to absorb and analyse information themselves for the purposes of improving investment decision-making.

While we see merit in both views (ratings as an ‘unimpeachable truth’ and ratings as ‘one person’s opinion’) we see the two different perspectives as causing considerable confusion in the market.

We suspect that a similar view exists on the corporate side with some people regarding ratings as a truth (or rather as falling short of the desire to find a ‘truth’) and others regarding them as one person’s opinion.

We will explore the parallels and stakeholders’ opinions on them further.

What are the main methods used to measure the sustainability of companies and other issuers?

  • EC interest: "The study should analyse how providers carry out their assessments” including “the extent to which they differentiate sustainability measurements across economic sectors”
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Outstanding questions

We would like to know from research providers:

  • What precisely ESG ratings set out to measure
  • How they determine which indicators are selected and weightings assigned within their various ratings methodologies

What we (think we) already know => Context

The basic process and methodology used to construct ESG ratings appears to be relatively simple.

It is harder however, to understand:

  • The precise underlying objective / intent of a ratings (as discussed above)
  • The granular detail about the individual indicators and weightings used

Basic process and methodology

The broad methodology of the major ESG ratings providers is relatively simple to understand and this report from Yale (2017) adds further detail.

In essence, an ESG rating is a sector-relative score assigned to an individual entity according to its performance against a weighted set of sustainability indicators.

To produce a rating, a research firm will typically:

  • Determine which indicators of sustainability exposure or performance are most material to the sector in question
  • Assign a weighting to these indicators
  • Gather a set of datapoints on the issuer in question
  • Assess the data gathered for consistency and estimate any missing datapoints.
  • Quantify any qualitative datapoints through scoring or ranking methodologies
  • Combine these datapoints with regard to the predetermined weighting system to create either:
    • A sector-relative score for an issuer – that assesses its performance relative to its peer group
    • An absolute score

Some providers incorporate a wide variety of environmental, social and corporate governance elements within their ratings; others use a subset (such as an environmental issue focus) while some will focus on a single specific issue, such as GHG emissions.

Some providers also provide measurements or indicators on specific issues, without necessarily scoring or ranking companies; for example, percentage of sales from green products or climate risk/exposure.  However, these lie outwith the scope of this section.

What indicators do they use?  How do they weight them?

The major ratings providers claim to gather information on over 100 indicators – although these will not all be used in ratings of all companies.  These are typically weighted on a sector-by-sector basis.  Although we do not know how this is currently undertaken and the degree of variance between the choice and weighting of different indicators in different sectors.  We will explore through our interviews with research providers how many datapoints are gathered, how indicators are selected for individual sectors and how weighting is determined.

How transparent is the methodology used to measure the sustainability of companies and other issuers?

  • EC interest: "The study should analyse … the level of disclosure and transparency of methodologies to issuers and ”
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Outstanding questions

We ask research providers about how transparent their ratings methodology is and which different stakeholders have what access to it.  We will also record the frequency with which ratings are updated.

What we (think we) already know => Context

Companies and asset managers often complain that ESG ratings are a ‘black box’ system that deny suppliers or clients the transparency that they want.

In response to this, a number of the (major) ratings providers have devoted time and effort to improving the transparency of their methodology.  Indeed, a number allow clients to flex weightings to personalize weightings to their own specific needs.

At the same time, we can understand why ratings providers hold back some of the methodology from company view - to prevent companies 'gaming' the system.  Equally, we can understand that there is a case that the methodology is the intellectual property of the ratings provider - although this argument is made less frequently than formerly.

We will investigate further the extent of the transparency given by ratings agencies and evaluate whether this fairly balances these different factors.

Can the methodologies used to measure the sustainability of companies and other issuers be biased?  Do ratings methodologies display bias based on geography, firm size or stock market sector?

  • EC interest: “To analyse whether methodologies can be biased, and what are the consequences of the bias. It will help to understand reasons for a low correlation between results of assessments of the same company done by different providers.”
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Outstanding questions

We ask research providers and companies whether they think there is any structural bias in ratings assessments (whether for geographical or company size reasons) and what is done to control for this.

What we (think we) already know => Context

In determining whether ‘bias’ influences ESG ratings, we must be very careful to differentiate between:

  • Bias – which is the inclusion of unintended information in the formation of ratings
  • Analytical judgement – which is the intentional use of information in the formation of ratings

A priori, we suspect that the latter is considerably more influential in the differences between ratings than the former, as biases in the industry appear to be similar across different research providers.

The largest cause of bias appears to be that ESG ratings depend fundamentally on disclosure.  This is inclined to favour:

  • Large companies – that tend to disclose more and pay specialist consultants to complete questionnaires
  • English-speaking companies – as much research is undertaken by English-speaking analysts
  • European-domiciled companies – who are more aware of the size and influence of sustainable investment

The former of these factors is confirmed by academic research.  For example, The Influence of Firm Size on the ESG Score: Corporate Sustainability Ratings Under Review).  Also, we know that there a number of academic and industry studies that – while focusing primarily on the question of investment performance of sustainability – generate, as a by-product, interesting information on the reason for that bias (and hence evidence of bias in the underlying ratings methodologies.)

What would be the pros and cons of increasing the level of transparency of the methodologies?

  • EC interest: "The study should analyse … the pros and cons of increasing the level of transparency of methodologies.”
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Outstanding questions

We have questions for all industry participants about the advantages and disadvantages of greater transparency around ESG ratings methodologies.

What we (think we) already know => Context

When considering the pros and cons of increasing the level of transparency of methodologies, we should consider the impact on four different stakeholders:

  • Companies (as suppliers of data and information)
  • Investors (as clients for that data and information as processed by the methodologies)
  • ESG ratings agencies (as the processors of that information and financial beneficiaries of the business)
  • The environment and society (the forgotten stakeholder that might benefit or suffer from the impact of changes)

We will be exploring the pros and cons further – against a preliminary understanding that improving the transparency of ratings methodologies would be likely to have the following impacts:

  • Reduce the frustration felt by companies at not understanding how they are scored – potentially leading to greater response rates
    • Beneficiaries: Companies; ratings agencies; by extension, investors
    • Disadvantaged: No-one
  • Enable companies to 'game' the process by engaging consultants to ensure they score well (a number of companies engage consultants to ensure that they score well in the rankings behind the Dow Jones Sustainability Index)
    • Beneficiaries: Companies that can afford to game the system (or afford consultants)
    • Disadvantaged: Investors, companies that can’t afford to game the system
    • Transparency would devalue the intellectual property that has gone into
  • Impact on the environment and society
    • As a side effect, companies might be encouraged to address areas of their sustainability exposure that are raised by ratings have previously been neglected
    • However, if the criteria or weightings were not well-aligned with sustainability, it might encourage companies to focus unduly on less significant aspects of their sustainability performance
    • It would encourage companies to challenge the criteria and weightings applied by ratings providers where they believe that these criteria do not align with a viable path to sustainability (the benign outcome)
    • It would encourage companies to lobby ratings providers to change criteria where they believe that those criteria do not present the company in a good light (the malign outcome)

Beyond these, there are likely to be numerous variables and potential behavioural effects - many of which will be unpredictable.

How frequently are ratings updated? Does this differ for different types of company?

  • EC interest: "The study should analyse the frequency of updates and publications of ratings and their consequences”
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Outstanding questions

We would like to know from research providers how often they update their ESG ratings and whether the update schedule is published.

What we (think we) already know => Context

We do not currently know the frequency with which ratings are updated - nor indeed whether the schedule of updates is regular and predictable by companies and/or whether it is designed around the reporting timetables of companies.

We suspect the latter is not the case and are therefore interested in what drives the update schedule.

We will investigate all of these aspects of the ratings review process.