Which ESG Ratings Should Companies Benchmark Their Practices Against?

Responsible Investment

Which ESG Ratings Should Companies Benchmark Their Practices Against?

  • Which ESG Ratings Should Companies Benchmark Their Practices Against? What are the top 10 ESG ratings out there, according to sustainability professionals?
  • Date: Apr 01, 2020
  • Category: Responsible Investment
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Which ESG Ratings Should Companies Benchmark their Practices Against?

Investor interest in Environment, Social and Governance (ESG) issues has continued to grow worldwide. Increasingly, stakeholders are beginning to realise the value that ESG factors (and by extension, ESG ratings) bring to help them assess their company’s overall performance, both financial and non-financial.

Growing Investor Interest in ESG

8/10

investors globally are “actively considering” integrating ESG criteria into investment processes/decision making

Investor interest in ESG issues has continued to grow worldwide, as stakeholders begin to realise the value of ESG ratings to provide an assessment of a company’s ESG performance and aid their decision-making.

Proliferation of Ratings Globally

>600

ESG ratings currently in the market globally – all measuring aspects of sustainability

However, over the last decade, there has been a proliferation of ESG ratings – from broad ESG ratings, such as the Dow Jones Sustainability Index (DJSI) and FTSE4Good, to issue or industry specific rankings such as CDP (focused on disclosures on environmental impacts) and SPOTT (focused on the ESG performance of commodity producers and traders).

Are ratings worth the effort?

YES

For core performance, to engage colleagues, and highlight gaps in current practices

While many companies seek to enhance their reputation through ESG ratings, the real value for companies to adopt/benchmark against selected ESG ratings is to improve core performance. Participating in ESG ratings can help to engage colleagues across the business on ESG, as well as highlight gaps in current practices and provide a benchmark to help drive performance improvement.

Companies should prioritise ratings that:

  • Provide value to the business as a management tool to benchmark and improve performance
  • Are seen as credible and are commonly used by investors and other stakeholders
  • Have a clear and transparent methodology

Which ESG Ratings Are Most Useful?

TOP 10

SustainAbility polled several thousand sustainability professionals to assess their views on which ratings they thought were most useful. Here are the results, highlighted in the Rate the Raters 2019 report:

  • RobecoSAM Corporate Sustainability Assessment (which administers the Dow Jones Sustainability Index)

  • CDP Climate, Water & Forest Scores

  • Sustainalytics’ ESG Risk Ratings

  • MSCI ESG Ratings

  • Bloomberg ESG Performance Scores

  • ISS-Oekom Corporate Rating

  • FTSE Russell’s ESG Ratings

  • EcoVadis CSR Rating

  • ISS QualityScore

  • Thomson Reuters ESG Scores

In short, companies should select ESG ratings with the primary objectives of benchmarking and improving their ESG performance. They should opt for ratings which are widely regarded as credible internationally, owing to their relatively transparent and comprehensive methodologies (e.g. covering an extensive range of material sustainability issues and soliciting inputs from key stakeholders in their evaluation process), as well as being commonly-used by investors and other stakeholders.

  • Tags : Benchmark, ESG Ratings

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