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The Challenge

At present, more than 100 sustainability raters administer questionnaires to thousands of companies worldwide, comprising a mix of investor and consumer-facing instruments ranging from issue-specific (e.g., climate change) to multi-issue (integrated environmental, social, and corporate governance factors) ratings, rankings, and indices.

From the company perspective: A single large company may receive more than two dozen surveys annually, all of which seek information – often duplicative – tailored to meet the data needs of various ratings. Companies question whether the requested data is material to their business and express skepticism that the outcomes will actually drive performance improvement. A company may be scored a sustainability leader by some ratings and a laggard by others, creating difficulties for users to understand the causes of such variability.

From the investor perspective: Sustainability ratings offer a valuable instrument for assessing a company’s capacity to anticipate and manage risks that may undermine its long-term competitiveness or reputation. Such ratings also provide valuable insights into the quality of a company’s strategy in terms of identifying and creating new markets for goods and services as well as its capacity to innovate.  Missing from this investor-rating relationship is a trusted, external, non-commercial party that provides guidance on what constitutes excellence in ratings.

From the raters’ perspective: Users are best served with transparent and customizable ratings to meet specific purposes. Transparency, however, must be balanced with protection of intellectual property.  Further, raters also face  economic incentives and pressures from their investor clients to expand company coverage breadth, but this often comes at the expense of deepening issue and indicator depth. This resource allocation dilemma pressures raters to expand company coverage a “mile wide,” often impeding their ability to enhance issue coverage to reach a “mile deep.”

A Necessary Solution

Understanding and reconciling company, investor and rater perspectives – all valid and compelling in isolation – is prerequisite to realizing a future in which ratings achieve their full potential to drive markets toward sustainable outcomes. Where interests diverge, compromise and harmonization will be necessary such that all parties view solutions as reasonably aligned with their respective needs and objectives and expanding the market for high quality ratings to the benefit of all parties, including society at-large. This outcome lies at the heart of GISR vision and mission.