ESG Ratings – Why all the confusion?

March 9, 2021
By CSE

From CSE Consulting team

 

Sustainable investments in the first half of 2020 amounted to $20.9 billion dollars in the US, compared to $21.4 billion throughout 2019. Investors rely on ESG reports and ratings to evaluate a company’s performance compared to peers. As interest grows globally, different environmental, social and governance (ESG) criteria and ratings have emerged, often resulting in confusion for companies.

 

Which ratings are most reliable and appropriate for my business? How can I integrate them into my business?

 

Usually, the rating institutions choose which companies to rate, rather than you, based on investor or financial stakeholder demand. There are several ratings available from reliable institutions, such as Sustainalytics, MSCI, Dow Jones, CDP, CSR Hub. If companies want to be more proactive, they can choose the most appropriate based on best practices followed by their peers.

 

Most important, however, is corporate behavior.

 

How to achieve high ESG scores is the million-dollar question. CSE’s 2020 Annual Research into ESG Ratings and Sustainability Reporting Trends in North America finds the drivers for high ESG scores are 1) comprehensive ESG strategies and 2) transparent Sustainability Reporting. Some common tools and policies that make the difference include:

 

• Holistic strategy and publication of an independent ESG Report
• Setting ambitious goals and identifying risks and opportunities in all material issues
• Integration and use of ESG Frameworks such us GRI, SASB, TCFD & CDP
• Frequent materiality assessment through the engagement of key stakeholder groups

 

Openly stated ESG considerations and ratings ensure transparency in sustainability practices and can help financing. The practices above ensure that when a ratings agency finds you, they also find the best presentation of your efforts and goals.

 

For example, industry leader NVIDIA (NVDA) ranks at top of ESG ratings. NVIDIA has a stringent policy, which does not allow the use of conflict minerals in its products – an ambitious goal important to their key stakeholders. Moreover, the company trains nearly 100% of its workforce on anti-corruption and anti-bribery issues – preventing a possibly debilitating global risk. They report their findings annually in their NVIDIA Corporate Social Responsibility Report.

 

During a 3- year period (2017-2019), 4 out of 5 of the top ESG rated companies achieved better financial results as indicated by their annual revenues. The payoff is worth a bit of confusion in getting your highest rating possible.

 

To guide you securely into building or optimizing your Sustainability (ESG) strategy, CSE can provide coaching and practical tools. Contact us for more information or a free ESG ratings assessment.

 

[email protected]

 

For more information on ESG Research from CSE, see here.

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