What makes a great Rating Agency?

Ronald Lubberts

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SustainalyticsA new venture

Starting November 2008 …

� Independent ESG research and analytics

� Capitalize on a decade of international development

� 25 sustainability experts

� 4 locations (NL, BE, GE, SP)

� backed by committed and financially strong shareholders

� range of high-quality responsible investment services

� comprehensive and innovative web based research platform

� co-operations with market-leading partners in Asia and North

America

� servicing > 50 clients today

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Sustainalytics Services

Advanced Screening

� UN Global Compact

Compliance

� Controversial

Weapons Radar

(UN PRI Related Services)

� Customized Analysis

Information & Ratings

� ESG DatabaseOnline ESG Profiles & Ratings

EQUITIES

- MSCI Global Developed

- Emerging Markets

- SMCs

BONDS

- Non-quoted Issuers

- Countries

Responsible Investments

Advice

� Portfolio

Analysis

� Governance

Advice and

Proxy Voting

� Consulting

Responsible Investment Services

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Report on ESG rating consistency

� “Investigating consistency of judgment among SRI

analyst organizations”

� University of Gothenburg; Chalmers University of

Technology

� 7 research organizations

� Evaluation of environmental criteria and ratings

� Sectors automobile and paper/forestry

� Agreement on worst – disagreement on best

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Variation in rating techniques

Validity depending on number of factors

� aim / perspective analysis

� Criteria used (indicators)

� More ….

� Factual/ discrete

� Practical considerations

� GRI …

� data retrieval methods (data collection)

� weightings

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Variation in aim/perspective analysis

� Validity depends on expectations of analyst/ end user

� ESG data future predictors of stock prices?

� Are indicators material to companies’ financial performance?

� Do they have predictive validity?

� Inconclusive – mixed picture .... (not much difference in risk

adjusted returns)

� ESG data measure potential effects on Society?

� Do ESG ratings properly capture effects on env – soc?

� Do they have predictive validity?

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Variation in use ratings ...

� Screenings

� Use of ratings

� Aggregated scores

� Thresholds

� Complement to traditional financial analysis

� Quantitative strategies .....

� “Integrated” approaches ...

� Low rating – call for closer analysis

� Less attention for to long-term ESG issues (short-term

incentives)

� Addicted to numbers – no time to read that stuff ...

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Great rating agency (1)

� Addressing the (right) challenges

� impact of lack of disclosure on rating� Range of certainty – error margins

� Focus on key sector issues� Less is more (less indicators and corresponding weighting)

� Clear rational for indicator selections

Great rating agency (2)

� Addressing the (right) challenges

� Flexible framework to ensure relevance

� Companies differ!

� Flexible framework

� Complement mechanical aggregation with ‘subjective’

analyst assessment

� Know strength and weakness of mechanical aggregation

techniques

� Think – analyse – synthesize

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Great rating agency (3)

� Addressing the (right) challenges

� Analyse problems

� product / services

� operations

� Controversies

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Contact

Ronald Lubberts

Managing Director

E-mail: ronald.lubberts@sustainalytics.com

� Amsterdam

� Brussels

� Frankfurt

� Madrid

www.sustainalytics.com