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Insights 21 Jul 2011

Rate the Raters Phase Four: Where do we go from here?

By Suzanne Fallender

I’ve spent most of my career working on some aspect of company evaluations or ratings, and all I can say is that if there was an easy single answer to “which is the best company?”, I could be retired on a lovely beach somewhere.

In my own view, the current discussion of the usefulness and quality of sustainability ratings and rankings is more hopeful than discouraging. If I look back over the past decade, many ratings and rankings have greatly improved their quality and methodology. Companies are more transparent and more managers and corporate executives are asking questions about how to drive value through corporate responsibility (driven in part by the attention and competition generated by ratings).

However, with the proliferation in the sheer number of ratings and with many people I know at companies throwing their hands up in frustration about being asked to complete yet another survey, I think we have a window of opportunity to improve the quality and usefulness of ratings. In addition to the many good points and conclusions outlined in both the Rate the Raters Phase Four report and the new GISR initiative being kicked off, here are a few of my thoughts on what’s working and what we could improve going forward. .

What’s working?

  • Tool for internal performance improvement. Ratings have the most impact when companies can use them as part of their own benchmarking and evaluation processes. For the ratings that provide summary profiles back to companies or make them public, there’s information we can glean and share back internally with colleagues as a tool to improve performance. For example, our CSR team takes the results from our ratings into staff meetings for our environmental, health and safety department, and our supply chain teams – to review areas where we have opportunities to improve.
  • “Macro” results and emerging trends. Looking across the collective results of multiple ratings is also critical, since a single rating usually only gives you one perspective. This exercise allows us to hone in on the similar areas which are flagged as needing improvement by multiple organizations, identify new emerging issues and trends, and understand how we are being viewed externally. We share these trends with our executives and employees to reinforce the value of our corporate responsibility investments over the long term. **
  • Dialogue and two-way feedback. I have found that most research firms I’ve dealt with are open to feedback on methodology and process concerns. At Intel, we’ve had regular annual meetings with leading researchers at ESG ratings firms for over a decade, through a “road-show” that we do with Investor Relations which helps us gain a better understanding of the ongoing challenges in doing this research. I have also on occasion called up an analyst to share with them positive feedback when the quality/insight is particularly strong in a report or evaluation.

What could be better?

  • Research quality and completeness. There are many excellent analysts and research firms working on ratings today and, having worked on the research side myself, I know how challenging it can be to track down information. However, it is very frustrating when we are sent profiles with tons of missing or inaccurate data. I have sent two profiles back to analysts in the past six months asking them to take another pass before our team will take the time to go through it. Sometimes, the fact that they’ve missed something is an indication that we’ve put the information in a hard-to-find or not intuitive place; other times it’s simply a reflection of research process and quality.
  • More analysis, less regurgitation. Our team spends a great deal of time on our annual Corporate Responsibility report, and this has reduced a great deal of our workload in responding to questionnaires over the years (a plug for doing GRI-based reports). However, I cringe when I see some ratings reports that consist only of paragraphs copied and pasted out of our report. Ratings are most helpful – to investors and to companies – when there is analysis, judgment and context for the data and information (a point highlighted in Rate the Raters).
  • Making the connection to value. I would like to see ratings and rankings focus in on fewer data points, but hone in on areas that are aligned with the core business/industry drivers. At the end of the day, ratings need to be more actionable, and the more relevant that we can make them to mainstream investors, the better. Having a good understanding of a rater’s methodology and approach is helpful in this regard, since rated companies, investors and consumers can better understand how they are connecting the ESG factors included back to value protection and creation.

What are the three things we companies can do to help?

Now it’s your turn. What are your “three things” on what’s working and where there are gaps? I’d also like to make a special call-out for the raters to weigh in with three things that we companies could do that would make your job easier and help move the quality and impact of ratings the next level.

Suzanne Fallender is Director of CSR Strategy & Communications at Intel and was a member of the Rate the Raters advisory panel.

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