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Reports 13 May 2010

Rate the Raters: Phase One

Understanding the Universe of Corporate Sustainability Rankings

By Michael Sadowski

In 2010, there are a dizzying number and variety of external ratings, rankings, indices and awards that seek to measure corporate sustainability performance.

Stakeholders of all kinds – investors, consumers, employees, etc. – are increasingly relying on these ratings to help inform their decisions (to invest, purchase, work, etc.). Companies also rely on such ratings to gauge and validate their own sustainability efforts, with some even linking management performance evaluation and compensation to external ratings. These ratings, therefore, must be robust, accurate and credible.

“Ratings agencies have extended their grip and lulled investors and institutions into a false sense of security.”

John Gapper, Financial Times, April 28, 2010

Yet, similar to how investors have been lulled into a false sense of security by credit ratings agencies (as John Gapper opines), users of sustainability ratings may be getting lulled into the same state. Serious questions remain about the role and credibility of ratings. Who are these raters and how do they go about their research? How do they define “sustainability?” How do they determine and compare material issues across sectors? How transparent are they in their approach? And are they truly driving companies and society towards a more just and sustainable world?

To answer these questions, SustainAbility has embarked upon a research project – Rate the Raters – in which we will attempt to better understand the universe of external sustainability ratings and to influence and improve the quality and transparency of such ratings.

This paper concludes our first phase of research in which we explored the evolution of the ratings agenda over the last decade, identifying key trends and challenges such as the difficulty in rating companies across sectors, the lack of focus on the economic leg of the triple bottom line and whether ratings are helping to drive us to a sustainable future.

We now move forward with the remainder of Rate the Raters. In phase two (May to July 2010), we will map the current universe of sustainability ratings, capturing various data points (e.g. research source, issue focus, disclosure of methodology) and identifying patterns and trends across the ratings. In phase three (July to October 2010), we will dive deep into a select number of ratings to better understand how they approach the evaluation of sustainability performance. We will seek to understand how these ratings deal with the challenges identified in our phase one research, and we will also look for examples of good practice that may be applied elsewhere. Lastly, in phase four (November to December 2010) we will explore the future of sustainability ratings and how they need to evolve to meet the challenges and needs of ratings producers and users.

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Rate the Raters

Rate the Raters attempts to better understand the universe of external sustainability ratings and to influence and improve the quality and transparency of such ratings.

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