CSR ratings and rankings can be useful guides to company performance, but should be approached with caution, according to participants at a GlobeScan/SustainAbility Salon in London on October 12.
Attendees from global companies, think tanks, NGOs and research organizations gathered at GlobeScan’s London offices to discuss the significance and of the vastly increased number of CSR and sustainability ratings, with an expert panel chaired by SustainAbility’s Gary Kendall, consisting of Mallen Baker, Founding Director of Business Respect, Seb Beloe, Head of SRI Research at Henderson Global Investors and George Dallas, Director of Corporate Governance at F&C.
Sam Mountford, Research Director at GlobeScan, opened proceedings with a presentation of GlobeScan’s global attitudes tracking among publics and sustainability experts, and an interactive e-vote among all attendees on their perceptions of CSR rating systems.
Some key themes emerged from the discussion:
Public perceptions of trust and responsibility have undergone a number of recent shifts
GlobeScan’s recent public and stakeholder attitude tracking shows that trust in global companies remains very low. There is also a widening gap between public expectations and perceptions of corporate performance on CSR. Responsibility is increasingly associated with the increasing demand for transparency; possibly linked to the boom in social media, with consumers increasingly expect transparency about corporate failures and shortcomings. However, Mallen Baker suggested that actual confidence levels in the corporate world might be higher than this suggested, as it is “very easy to distrust generalities”, as opposed to individual companies and public figures.
Scepticism about the usefulness of CSR ratings
Both participants at the Salon and global sustainability experts polled in The Sustainability Survey doubted the ability of ratings agencies to accurately measure a company’s level of sustainability. NGOs were felt to be the most accurate judges, ahead of ratings agencies. But panelists argued that the results of respondents’ comparisons between ratings organizations revealed a lack of familiarity. Seb Beloe said that ratings were less useful in isolation and too dependent on data received from companies. Ratings, he thought, were also limited by the difficulty in comparison between different sectors, and did not take into account external or historical factors; carbon emissions in the energy sector are complicated by inherited circumstances from previous leaderships or outdated technologies.
Ratings and the trade-off between coverage and quality
George Dallas stressed the importance of understanding what the composite elements of ratings are. Sustainability ratings combine environmental, social, and economic factors, but with no consensus as to the proportional importance of each, resulting in potential subjectivity. Those with a narrower focus are more likely to match specific needs. Seb Beloe suggested that there was a choice when utilizing ratings; either you focus on a specific subset of issues, or you consider a range but use professional judgment.
The increased use of ratings by companies points to the power of branding
The explosion of the ratings field prompts questions as to where the demand stems from. This is the “power of branding” according to Mallen Baker, which would go some way to explaining why the Dow Jones scores highest among ratings companies and why NGOs perform better than ratings companies. People respond to the integrity of NGOs rather than their ability to judge a “universe” of companies. Companies are not single sentient units but broad combinations of communities, cultures and practices. Individual leadership and management structure can have a transformative effect and, along with quality of service, are part of a complex interaction of factors.
What is the purpose of ratings?
Panelists said they thought the problem with CSR reporting was the gap in the market for interpretation into strategy. “Ratings should not be an end unto itself”, according to George Dallas, “Research needs to be actionable and the point of a rating is what you can do with it.” End investors see ratings as a dimension of risk management. Demand for CSR ratings may stem from their use as a positioning tool.
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