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July, 2011

July 27th, 2011

More Demand Will Drive Greater Quality and Transparency of Ratings

The following was originally posted by Michael Sadowski, VP of SustainAbility.  To view the original blog-post, click here.

SustainAbility

A question and answer with Wood Turner and Mike Bellamente of Climate Counts, one of the ratings profiled in SustainAbility’s Rate the Raters research series.

1) Looking at the Phase Four paper of Rate the Raters, what resonates most with you?

Now that corporate sustainability ratings have been around awhile, SustainAbility’s Rate the Raters project helps us gauge what the future holds. The phase four paper establishes that rating standards will require greater differentiation moving forward, and that raters will need to distance themselves from the overly saturated data compilation side of the business in order to remain competitive. We at Climate Counts certainly believe this to be true; indeed, if our goal is to point the business community in the direction of climate change awareness and leadership, it should be done with clarity and efficiency, not complexity and duplication.

The report also touches on a number of themes to which no rating organization is immune, including financial viability, consistency, transparency and strategic focus. Profiling the industry on these topics allows organizations like ours to recognize how we stand in relation to the competition. This is never a bad thing. In fact, identifying where the ratings world has been and where it’s going is paramount to our continued success as an organization. Just as the companies we rate are beholden to their customers and shareholders, we too need to observe and adapt to the changes in the marketplace.

As RTR Phase Four suggests, “almost every rating system has at its core a mission to help businesses inch toward sustainability.” Big business has the reach, resources and marketing dollars to make it understood that climate change is a real issue facing today’s generations, more so than all the nonprofit climate advocacy groups combined. Having a collective partnership with raters and industry sectors alike allows for greater idea generation and less finger pointing when it comes to achieving results toward a healthier environment and a healthier, more efficient economy.

2) What makes you uncomfortable/uneasy?

We’re not sure uncomfortable is the right word, but it is interesting to see that so few raters (including CC) have been able to create a financially viable model for what is seemingly bulletproof consumer demand. As SustainAbility asserts: “Companies are linking executive compensation to performance on ratings. Asset managers are leveraging sustainability ratings and research in their investment decision making.” With indicators like this illustrating the degree to which companies are taking corporate responsibility ratings seriously, it is alarming to think how few have been able to arrive at a model that institutionalizes rating systems with consumers in a way that can be self-sustaining.

Inherent in a credible rating system that shows great promise and value, it seems, is the paradox that any judge of others would be morally compromised by generating revenue through the ratings process. Somehow, this needs to change, and hopefully Climate Counts can be a catalyst.

3) In the Washington DC workshop, we had a vigorous conversation about the need for the ratings agenda to take a closer look at quality and standards. Yet you shared perhaps a different slant on this – can you elaborate here?

Wood’s quote from the workshop:

“Rather than perseverating over the need for common criteria, quality standards, etc., we (raters, companies, consultants and others) should join together to dramatically boost demand for ratings. Greater demand will help resolve many of the issues we’re talking about today.”

If the quality of a rating standard is derived from the rating’s simplicity, transparency and consistency, we think it is those ratings that will continue to be marketable regardless of the “common criteria” that exist across multiple rating systems. Our work as raters is only as important as the companies and consumers who pay attention to them. Put another way, whether the value our industry provides is perceived or actual, companies will only continue allocating resources to sustainability if it remains in some way relevant to their bottom line. At Climate Counts, we would like to think that as awareness of climate change grows, our rating systems will become more, not less, important. That said, we continue to operate in an ever-evolving discipline that demands constant attention to the interests of consumers and businesses alike.

In many ways, our goals as a rating organization run parallel to those of the companies we rate. If Company A has gone to great lengths to reduce their carbon footprint and report their successes, they want to let customers know this. What better way to publicize your achievements than by being rated ahead of a competitor through an independent, credible third-party ranking system. Climate Counts wants to be THE ranking system that companies consider especially relevant and useful, not just the ones who score well in our rating system.

4) You also have a practical view on whether and how raters can also be consultants. Can you explain?

As with the ratings themselves, transparency is at the heart of whether a ratings organization can make the successful leap into the role of advisor or consultant. The goal is to provide outward-facing, clearly defined and delineated operational guidelines that can withstand the most profound levels of scrutiny, guidelines that adhere to the mission of the organization while maintaining operational integrity.

At Climate Counts, we perform annual rankings of 150 of the world’s largest companies based on their efforts to measure, reduce and report greenhouse gas (GHG) emissions, in addition to whether they take a formal stance in support of climate change legislation. Because there are several companies that recognize the value of this service, but don’t represent one of the 150 largest companies, we have developed the Industry Innovators (I2) program. Our I2 service offering allows businesses to: 1) employ our industry-proven ratings criteria to complete self-assessments; 2) engage with our project team directly to outline a plan for improved performance; 3) access membership privileges such as marketing assistance, peer networking and consumer-facing media opportunities.

We accomplish the balance between our annual Climate Counts rating process and our revenue-generating I2 program through full disclosure of our rating methodologies, use of publicly reported information in our evaluations and a set of strict internal governance procedures to avoid conflicts of interest.


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