what makes a great rating agency?

What Makes a Great Rating Agency?

30 October, 2008

TBLI Presentation

www.riskmetrics.com 2

RiskMetrics Group Research Team

• = RMG Office with ESG Analysts • = Other RMG Office

RiskMetrics ESG team is comprised of 53 full time staff.

Analysts are located in close proximity to the markets that we cover, with staff in Brussels, New York, Washington, Toronto, Manila, and Tokyo.

The ESG team is further supported by a global research team of

225+ analysts

Key advantages of the RiskMetrics ESG research team:

� Research is able to develop a deep understanding of the legal and regulatory climates in which companies operate

� RiskMetrics employs thought leaders across topic areas

� Clients have access to the research team


ClassAction Services

The Next Frontier for ESG –Sustainability Risk Management (SRM)

It takes 20 years to build a

reputation and five minutes

to ruin it. If you think about

that, you'll do things

differently.

- Warren Edward Buffet

Sustainability Risk

Management (SRM)

Five pillars of SRM: Climate,

Environment, Labor &

Human Rights, & Ethics.

RiskMetrics Group


Material

Risks‘Biggest Concerns’

Values-Based

Restrictions

Shareholder Resolutions -

Social & Environmental Issues

Values-Based

Proposals

Compliance Screening-

Faith-based screens (Tobacco)

Global Sanctions (Sudan)

Climate &

Environmental

Risk

“S”

Reputational Risk –

Labor & Human Rights

Ethics

Product Safety

“E”SRM SRM

SRM

SRM SRM

SUSTAINABILITY RISK MANAGEMENT (SRM)


Key areas covered by Riskmetrics

Ethical Screening GovernanceSustainability

Governance (Policy)Performance

Our Ethical or Compliance Screening

business focuses on specific business lines or

practices which some investors choose to

avoid, often on moral grounds.

� Adult Entertainment

� Alcohol & Tobacco

� Animal Welfare

� Contraceptives/ Abortifacients

� Weapons & Firearms

� Gambling

� Nuclear Power

� Stem Cell Research

Sustainability research takes a governance

approach and seeks to understand the

policies and practices that companies have

in place for managing risk (and

opportunities) that may arise from

environmental and social issues.

� Climate change

� Resource use

� Waste management

� Labor practices

� Human rights

� Product Safety

Governance research, within the ESG group

(separate from the proxy research process)

is aimed to developing an overview of the

governance structure at covered companies.

However, this area does draw heavily on the

broader group of governance analysts and

the proxy research process.

� Board of directors

� Executive remuneration

� Takeover defenses and management

entrenchment

� Internal controls

� Equitable treatment of shareholders

� Ethics


ESG – Summary of Coverage

Riskmetrics’ ESG group divides research into three principle areas – Ethical Screening, Sustainability, and Corporate Governance. There are approximately 8,800 distinct companies for which we have data in one or more of these areas.

Ethical Screening Sustainability

Corporate

Governance

Europe 641 594 1,199

Americas 5,445 1,169 5,552

Asia 534 202 924

Middle East 37 1 1

Africa 66 0 2

Total Companies 6,723 1,966 7,678


Research Process

Third

Parties

Company

Engagement

Disclosure

Begin with a

complete review

of company disclosure to

build a company profile comprised of as many as 400 datapoints. Sources include:

� Annual Reports

� CSR Reports

� Other Regulatory Filings

� Press Releases

� Environmental Disclosures

We will seek to fill gaps in our profile by reviewing third party content from reliable sources. Our analysts will always seek to verify any data collected from external parties. Sources, which will vary with the company, geography, and the data to be collected, may include:

� General Media & Specialist Journals

� Trade Organizations

� Exchanges

� Regulatory Agencies

� NGO’s

Company outreach is a two-step process. First all companies that are scored have free access to their data via a website and are encouraged to review their data on a regular basis

Stage 2 is direct company contact and verification of materiality assessments


ESG Investor Toolbox

Ethical Screening Sustainability Governance

Insight � Social Issues Company

Reports

� Proxy Research

� Reputational Risk

Reports

� Proxy Research

Analytics � Sustainability Scores

� Modeling Tools (custom

scoring)

� Governance Scores

Online screening application (ESG Screener) allows for analysis of companies across

our universe or within a specific portfolio

Data Any combination of the underlying data across ESG issue areas may be delivered as

a raw datafeed. Datafeeds may be customised for content as well as format and

are typically delivered via ftp

Bespoke

Bespoke research services may involve any combination of a custom universe of companies, custom issues, a custom scoring model, or a custom delivery format for data and/or reports.

Our ESG research and tools may be

organized into a product ‘stack’. Content may be accessed in research reports, online applications, and in direct feeds of raw data. In addition to a broad range of standardised products, we maintain a very strong bespoke research capability.

Key advantages to the RiskMetrics ESG product suite:

� Multiple means of accessing content allows maximum flexibility

� All scoring models and research notes are fully transparent, with sources and weights disclosed

� Online tools allow for positive and exclusionary screening

� Online tools allow for simplified monitoring of multiple portfolios


ESG Screener Screen Builder/Editor OverviewSelect from different view ‘templates’ for search results

Click on a company name and then select a report to view in the popup menu

See a summary of the selected criteria for each company on the list

Save the results as a portfolio for further screening or export the results to a file


Custom Scoring Model

This is an example of a bespoke scoring model where the universe of companies, the research criteria, and the scoring model are all custom for a single client.


For More Information, Contact:

RiskMetrics Group, Inc.1 Chase Manhattan PlazaNew York, NY 10005Tel: +1 212 981.7475Tel: +1 212 354.3054Fax: +1 212 575.0251www.riskmetrics.com

Mark Tulay

[email protected]

what makes a great rating agency?

Economy & Finance