Rate the Raters // Phase Two Taking Inventory of the Ratings Universe

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We’ve seen headlines like these (at left) before. In what has become a seasonal occurrence, the release of a new or updated rating of corporate sustainability performance is followed in many quarters by disbelief — even dismay — that some raters are themselves inscrutable and that companies some consider pariahs have been ranked among those deemed most sustainable.

Familiar as this pattern is, with the autumn 2010 release of phase two of our Rate the Raters research program occurring amidst a series of major ratings announcements (from the Carbon Disclosure Project, Dow Jones Sustainability Indices, FTSE4Good, Newsweek and others), there seems to be greater interest and angst than normal among both rated companies and others working on the sustainability agenda.

On the corporate side, some may be hitting a boiling point fueled by the effort required to keep track of and respond to the constantly growing number of ratings. Perhaps for others it is the opacity of the ratings organizations’ methodologies and listing / de-listing processes. But we think there is something more profound taking place: ratings are being taken more seriously as they go mainstream. And, as they come to matter more to more stakeholders, the spotlight shines brighter on ratings — and the organizations which create and promote them.

Consider: A growing number of companies are linking executive compensation to performance on ratings. Major mainstream asset managers are examining company sustainability performance as part of their investment decision making. And, slowly but surely, citizens and consumers are starting to wake up to these issues and are turning to ratings for actionable information. While these are all welcome developments, increased attention means ratings must be able to demonstrate that they are fair, accurate and credible.

SustainAbility launched Rate the Raters because we see promise in this current mainstreaming and because we observe too many ratings failing to live up to expectations. We hope to play a constructive role in the ratings space by identifying and sharing best practices across ratings and by convening key stakeholders — raters, companies, investors, sustainability experts and others — to learn from these practices and to explore how ratings can be improved.