Richness vs. Reach: 5 Minutes to Review Sustainability Rankings

Making an informed decision about resource allocation
Richness vs. Reach: 5 Minutes to Review Sustainability Rankings
Publ. date 10 Aug 2015
Are the Dow Jones Sustainability Index and other sustainability rankings taking up (too) much of your time? This sound is being heard a lot these days and the cry for standardisation of questionnaires seems to be getting louder.

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During the summer season you may find yourself reflecting on the participation of the benchmarking and reporting activities that you’ve been engaged in, as did Harvard professor Robert Eccles in a blog post, mentioning the “burden of immaterial sustainability reporting”. 

Investors’ lens focuses on value creation and risk mitigation

The main purpose of participating in rankings such as the DJSI is to compare your sustainability performance with peers in terms of sizeable listed companies within ánd outside your own industry. The upside of a strong performance is that your sustainability leadership will be demonstrated by a trustworthy third party and therefore acknowledged by a growing group of investors that are looking for high performing companies with a solid sustainability profile. Since investors are on the outlook for value creation, the majority of rankings lead to better informed investment decisions, as it enables investors to identify attractive investment opportunities that generate long-term value.

By trying to focus too much on standardised materialities which is advocated from an accountancy point of view, and centre the company’s sustainability approach around those (mostly risk mitigating) issues, the opportunities to create competitive advantage as the vital purpose of a winning sustainability approach will seized to be captured. And as a consequence you will be caught in the Reporting Trap.

4 Things to consider to efficiently engage in sustainability ratings 

Since the list of rating and ranking questionnaires that land on your desk is growing, you might be tempted to look through the accountants’ lens as well. It’s worth noting that rankings are still voluntary – there’s no legal requirement to participate to any of them. But how to determine which are the most relevant rankings in order to make an informed decision about allocating resources and making an effort to participate? The next four items may help you to choose your battles wisely:

  1. Initiator and target group: Plenty of rating agencies, analysts and research companies are looking for non-public data to complete their profiles on companies and make an assessment of their sustainability efforts. A starting point to consider is the initiator: who is asking the questions and for whom are the insights collected? A rating agency may be focusing on cherry-picking the most attractive candidates for (responsible) investors, but a critical NGO could represent a potential troop of activists, hoping to scapegoat the underperformers.
     
  2. Focus and recognition of the benchmark or ranking: An important aspect to consider is the focus of the benchmark. Are they focusing solely on a specific issue, or are they looking to assess the company’s sustainability performance as a proxy for financial success in the long term? And does the rating applies an industry-specific perspective, or do all companies jump through the same hoop? Additionally, it is worth checking out the reputation of the requesting party. Companies should consider investing in rankings that have enough prestige to include its logo as a mark for performance on their websites or reports. Meta-benchmarks such as SustainAbility’s Rate the Raters provide insight in the credibility of well-known raters. Asking your most important stakeholders, such as shareholders, directly which third-party sources they trust for valuable and objective information, is an efficient way to assess and determine your priorities.
     
  3. Level of personalized feedback on performance: Gather insights on how feedback on company performance is provided once the questionnaires are processed. Do participating companies receive a scorecard or performance report based on their inputs? Or do you only receive confirmation whether or not your company is included in a leadership index? Feedback from these assessments can prove to be a valuable tool, as it provides an objective reflection of performance. However, the usefulness of this feedback depends highly on the level of detail and insight into areas for improvement. Detailed feedback can be used by participating companies to plan interventions for improving performance and measure year-on-year improvement on these areas.
     
  4. Public communication on results: Finally, it is worth noting how the rating agency communicates its results towards its direct customers and the greater public. Particularly when companies are looking for open recognition of their sustainability efforts from independent, credible third-party sources, levels of transparency on benchmark outcomes are an important criterion to take into account.

    While some rankings were designed to name and shame frontrunners and laggards in a top 100-list, others sometimes are not as visible – whether or not because of poor communication skills, or whether the business model relies on the results to be sold. Publications such as the RobecoSAM Sustainability Yearbook, which include full listings of leading companies and follow-ups for 59 industries, are particularly useful to demonstrate your company’s performance from an independent expert objective.

 

Rationalizing your sustainability ranking efforts

Are you looking for support on how to best rationalize your sustainability ranking and rating efforts? Please contact Josée van der Hoek, Founding Partner, for help or a second opinion, at +31 6 28 02 18 80 or josee@finchandbeak.com.

Image source: ECCC, Flickr 

About Josée van der Hoek

Experienced strategic issues management specialist with expertise in strategy development, food waste and DJSI. | josee@finchandbeak.com

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