harnessing sustainability ratings to move markets european university at st. petersburg dr. allen l....
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Harnessing Sustainability Ratings to
Move Markets
European University at St. Petersburg
Dr. Allen L. White
30 September 2013
Peter BakkerPresident, WBCSD; former CEO, TNT
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“I am a capitalist…The mistake currently lies in only expecting (and managing) a return on financial capital. Capitalism requires a new
operating system and needs to be re-booted so that we expect and manage the return on
financial, natural and social capital. Business as usual is not an option for a future-
proofed economy in which nine billion people live well with the limits of the planet by mid-century.”
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About GISR
Founders: The Global Initiative for Sustainability Ratings (GISR) is a joint project of Ceres and Tellus Institute — partners that founded the Global Reporting Initiative (GRI)
Vision: Redefine the definition and measurement of company value creation that incorporates all forms of capital: human, intellectual, natural, social, along side financial
Mission: Create a world class corporate sustainability ratings standard as an instrument for embedding sustainability into company practices and financial markets worldwide
Strategy: Steward a multi-stakeholder and global process comprising: investment managers, pension funds, companies, NGOs, accountancies, academics, governments and raters
Launch: June 2011 Role: A standard setter. GISR will not rate companies; its standard will be
applied by existing and future ratings organizations
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20 Years of Sustainability Metrics
• More voluminous– GISR data base: 1500+ indicators/500+ issues– SASB: 900+ indicators; 500+ unique– GRI: G4: 29 issues/149 “disclosures”; sector research:
2800 indicators
• More applications– SRI– Self Assessment– Stock Exchanges– Ratings: Sustainability and Credit…………………. More material? More impactful?
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Sustainability Ratings:What’s the Problem?
Too many indicators Too many issues Too many surveys Too much volatility Too little transparency>>>Curbs utility, uptake, integration, and impact
Opportunity—grow the supply and credibility of quantity of quality ratings; mainstream sustainability, enhance company practices, move financial markets…
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Value Proposition for the GISR Standard
Companies Survey Fatigue Transparency Convergence
Investors Clarity Relevance
Raters Credibility Market Expansion
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Sustainability Information Value Chain
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Standards Ecosystem
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Identif
y
• GRI – Core universal and some sectoral indicator for sustainability reporting• SASB – sector indicators for US SEC reporting• IIRC – A framework that blends financial and sustainability information rooted in
“vital capitals:” Financial, human, intellectual, manufactured, natural, social
Inform
• GRI – Disclosure guidelines for stakeholders globally• SASB – Disclosures of sector-specific indicators “material” to SEC • IIRC – A framework for for guiding companies on communicating how value is
created preserved
Evaluate
• GISR – Standard comprising principles, issues and indicators for measuring corporate performance excellence
Selected GISR Partners
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Companies Investors
MetanoiaFund
NGOs & Foundations
Sponsors
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Building the Standard: Content and Accreditation
Levels
Component 1: Principles
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Process Assurability Continuous Improvement Impartiality Inclusiveness Transparency
Content Balance Comparability Comprehensiveness Sustainability Context Long-Term Horizon Materiality Value Chain
Exposure Draft>>>Beta>>>Version 1.0: November 2013
Example 1: A Balancing Act--Transparency
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Companies: Essential for performance improvement
Raters: IP is part of the business model
Investors: Essential for informed choice and application
Thus, transparency of what, to whom and in what form?
Example 2: A Balancing Act – Comprehensiveness and Sustainability Context
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X1
Baseline year
Peer comparison
PerformanceToday
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CompanyGoal
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STAR
T LI
NE
SUSTAIN
ABILITY CON
TEXT - FINISH
LINE
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Credit Ratings:The Next Sustainability Frontier
• Sustainability ratings rate companies
• Credit ratings rate debt issues
• Companies, public and private, float issues
>>>>>Credit markets=$10’s trillions/year
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State of Play – Credit RatingsNumber of Outstanding Credit Ratings by Category of Credit RatingNRSRO Financial
InstitutionsInsurance Companies
Corporate Issuers
Asset-Backed Securities
Government Securities
Total Ratings
AM Best N/R 4,826 1,910 56 N/R 6,792
DBRS 21,695 151 4,037 9,889 15,798 51,570
EJR 101 51 962 13 9 1,136
Fitch 54,586 4,010 14,427 58,315 217,198 348,536
JCR 163 27 478 N/R 54 722
KBRA 16,127 52 1,001 40 58 17,278
Moody’s 56,486 3,953 30,439 93,913 814,087 998,878
Morningstar N/R N/R N/R 16,070 N/R 16,070
S&P 60,700 7,800 45,400 108,400 948,300 1,170,600
Total 209,858 20,870 98,654 286,696 1,995,504 2,611,582
16Source: NRSRO Annual Certifications, 2011
Sustainability: Embedded in Business Risk Profile
S&P’s Corporate Ratings Methodology: Business and Financial Risk Matrix
Financial Risk Profile
Business Risk Profile
Minimal Modest Intermediate Significant Aggressive Highly Leveraged
Excellent AAA/AA+ AA A A- BBB --
Strong AA A A- BBB BB BB-
Satisfactory A- BBB+ BBB BB+ BB- B+
Fair -- BBB- BB+ BB BB- B
Weak -- -- BB BB- B+ B-
Vulnerable -- -- -- B+ B B- or below
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Ratings 2020: Companies and Credit
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Ratings 2013
STAR
T LI
NE
RATING
S 2020 FINISH
LINE
Financial Ratings
Sustain. Ratings
Ratings 2020
Financial Ratings
Sustain. Ratings
Integrated Ratings
Sustainability Ratings 2020
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RATINGS TODAY RATINGS 2020
Voluminous surveys burden companies; underinvestment in
sustainability by investors.
Common survey for core information and accompanying
supplements. Ratings harmonization without over-prescriptiveness.
Lack of transparency impairs application to performance
improvement and investor uptake
Users’ Guide to Sustainability Ratings and GISR Principles enhance
transparency, utility and value of ratings for financial markets
Lack of materiality leads to information overload
GISR standard drives convergence toward material issues and
indicators
Financial markets minimally integrate sustainability information
GISR builds ratings credibility and spurs market expansion for high
quality ratings
An Invitation
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Support GISR’s Standard Development Activities Technical Committee, Expert Advisor Committee, feedback
on public exposure and beta versions: www.ratesustainability.org
Join the Supporting Stakeholder Program A growing multi-stakeholder network of supporters
http://ratesustainability.org/get-involved/become-a-supporting-stakeholder/
Contact GISR to Explore Opportunities for Collaboration : http://ratesustainability.org/contact-gisr/
Thank you
For more information:www.ratesustainability.org
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