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As global ESG standards setter GISR builds, are the raters on board?

Sustainability ratings standards to be published in Q2 2013, but not everyone is happy.

As global ESG standards setter GISR builds, are the raters on board?

by Hugh Wheelan | December 10th, 2012

When the Global Initiative for Sustainability Ratings (GISR) was launched in June 2011 it would be fair to say that it was met with some incomprehension. But as the Initiative builds up to release its first set of Principles in May 2013 via a joint launch at the Ceres conference in the US and the GRI Conference in Europe, it is going to attract a lot more attention as the CSR and ESG business worlds take stock of what it is. GISR is developing a baseline standard of information that it wants sustainability ‘raters’ such as indices and ESG research houses to apply to the companies they assess. It argues that the number of research companies/raters has grown so much – the GISR estimates there are about 100 or so companies collecting corporate sustainability information worldwide – that the separate requests for information mean corporates face onerous reporting demands. Companies say current rater survey information is sometimes prone to error and that the use of diverse research methodologies means that companies can be rated highly based on one survey and lowly on another without understanding why. GISR says it does not rate companies but will certify raters that apply GISR’s basic ratings standards to companies and specialise on top of that. It is, it says, a standard setter like the International Organistion for Standardisation (ISO) or the corporate Global Reporting Initiative (GRI), which do not apply their own criteria directly, but lay out the template for others to follow. GISR will unveil three levels of certification in the next 24 months, starting with the Principles in Q2 next year, before adding the baseline ESG issues to be reported on by Q4 and then the relevant KPIs (key performance indicators) to be used by Q4 2014.
Not all in the ESG industry, though, are supportive of GISR’s aims. Research houses say they are concerned it is creating a mountain out of a molehill, although many recognise there is overlap of corporate sustainability information. An unsaid critique is that GISR may also be eating into part of their business model, which consists in collating corporate information and applying their research. By collecting the principal base-line sustainability information that can apply to all companies, the GISR says raters can demonstrate value through complimentary, customised research. At a recent BSR conference in New York, Tim Mohin, Director, Corporate Responsibility at Advanced Micro Devices (AMD), the US semiconductor company, said there was a credibility deficit in ratings and that while companies take them seriously they are losing patience responding to information demands that are not legally required. One large multinational told RI that a major sustainability index had been sending their questionnaire to the wrong person in the company for several years, and rating them accordingly on the lack of response.
In September, the fifth version of the Rate-the-Raters report published by SustainAbility, the CSR advisory firm, was published, which examines how raters use the sustainability information that they collect on companies: Link
Aside from major corporate support including advisory input from sustainability professionals at PepsiCo, Intel, Siemens and Deloitte, GISR has serious weight behind its organisational set-up. It is a global, multi-stakeholder, non-profit initiative, co-founded by Ceres, the US environmental investor coalition and the Boston-based Tellus Institute, the partners that built the GRI (a supporter also), which has
become the de facto corporate sustainability reporting standard despite facing similar resistance – ironically from companies themselves back then – when it was conceived more than 15 years ago. GISR’s founding partners include Bloomberg, UBS, the Swiss banking group, and TIAA-CREF, the US pensions and financial services group. Amy Muska O’Brien, Managing Director and Head of TIAA-CREF’s Global Social and Community Investing (GS&CI) department, herself a former ESG rater, said: “We are a major supporter of this initiative because we believe there needs to be a credible base standard. Diversity of research is important, but we need to be able to help asset managers understand what is important with better classification so companies and investors can understand how things differ. We also need to be able to explain to the public why and how we use these sustainability ratings.” ESG research houses remain nervous about the initiative. A senior official at one firm said that companies were rarely happy about providing information on sustainability issues, but that it was a minor irritant, and that the volume of questionnaires and information was not that problematic. Another ESG research house head said most raters already based a significant portion of their research information on GRI data and that they didn’t see the need for the standards that GISR is proposing. GISR says it is engaging with raters to participate in the GISR programme, although pointedly none has signed up publicly to date.
Allen White of the Tellus Institute, Founder and Co-Chair of GISR, said: “We are in various stages of discussions with 18 organizations that provide sustainability ratings, indices, or rankings.” He said the GISR hadn’t listened as much as it could have done to the raters at the outset, but said the discussion was advancing: “Our desire is to grow the ratings market overall and raise the bar. Investors are the primary audience: what’s relevant to investors is relevant to companies.” Mark Tulay, the former Head of ESG Solutions at RiskMetrics and now Program and Organizational Development Executive at Global Initiative for Sustainability Ratings (GISR), is involved closely in the liaison work with raters and investors. A webinar on progress by GISR is scheduled for December 13 Link for information.
The Initiative says it has built a network of some 2,700 interested parties and is finalising the committees, expert advisors and ESG definitions that will underpin the ratings framework. A GISR Users’ Guide for Sustainability Ratings and ratings profiles is scheduled for released in February, 2013 and a survey to inform and shape the development of GISR’s programs and standard-setting activities is on line:
All that remains to be seen is whether the raters themselves will sign up or not in the coming months….