Rate the Raters // Phase One Look Back and Current State

Download article

During more than two decades of working in the sustainable development field, SustainAbility has observed with keen interest the growing number of ratings, rankings, indices and awards that seek to measure, compare or reward corporate sustainability performance. Indeed, we have contributed our own ratings scheme through our long-running Global Reporters 2 survey of sustainability reports, last compiled for Brazilian companies in 2008. A common aspiration across these ratings is for such measurement and comparison — often public — to stir the competitive juices in companies to improve their sustainability performance and/or disclosure. Raters also aspire to provide useful information to target audiences (e.g. investors, consumers, prospective employees) and help inform their decisions.

However, as several commentators have recently noted, serious questions remain about the role and credibility of ratings. Some of the same issues that SustainAbility identified in Values for Money 3 (2004) — which examined the quality of responsible investment research at that point in the field’s development — remain issues today: poor transparency in the ratings process, inadequate focus on material issues, difficulty in comparing companies across industries, conflicts of interest in organizations that offer services (alongside ratings) and so on. We would argue that these issues are more critical in 2010, as an increasing number of stakeholders rely on these ratings to help inform decisions such as where to invest and work and what to purchase. While the quote from John Gapper at the beginning of this paper refers to the inherent conflicts in the business models of credit ratings agencies, the same false sense of security applies to sustainability ratings as well.

Users, watchers and perhaps even producers of ratings are left with pressing questions. Are these ratings sending credible and relevant signals to those who base important decisions upon them? What is the merit of comparing companies across industries, regions and issues? Why do we need so many ratings? And, are these ratings truly driving companies and society towards a more just and sustainable world for present and future generations.