An increased focus on corporate sustainability performance has led to the development of many ESG/thematic indexes, benchmarks, and ratings.
The information required for such indexes, benchmarks, and ratings, may not be publicly available, therefore the index or benchmark providers send “information requests” to the companies. As a result, companies receive plenty of “information requests”. While it is in interest of the companies to provide such information, they often choose not to provide such information due to lack of understanding of the methodology or resources.
Hiring a specialized firm to help respond to such “information requests” may not only save time and resources, but also can go a long way in helping companies communicate better about their sustainability practices.
Corporate sustainability has been gaining increasing attention by various stakeholders. The growing importance placed on companies’ sustainability performance has led to the development of many ESG/thematic indexes, benchmarks, and ratings.
The ESG indexes, benchmarks, and ratings are based on a company’s score derived from company’s ESG performance on a pre-defined methodology. Similarly, thematic ratings/benchmarks evaluate a set of companies on the most material themes, such as health and safety in textiles, access to medicine for pharma companies, and data privacy for telecom and technology companies.
These rankings/benchmarks are widely used by the investors and other stakeholders in their decision-making process. Some of the most recognized ratings/benchmarks are Dow Jones Sustainability Index (DJSI), Financial Times and the London Stock Exchange (FTSE4Good), Carbon Disclosure Project (CDP), Institutional Shareholder Services (ISS-Ethix), Morgan Stanley Capital International (MSCI) Indexes, Access to Medicine Index, Access to Nutrition Index (ATNI), Access to Seeds Index, Responsible mining, etc.
For a company, an excellent ESG rating provides the following key benefits:
- Attracts additional capital investments, i.e. a large group of investors rely on these ratings in decision making;
- Better risk management, thus lowering cost to operate and higher long-term returns;
- Builds reputation, brand and market credibility, i.e., inclusion into ESG indices, thus high brand value and stakeholder value creation;
- Attracts and retains customers, e.g., consumers favoring green products / sustainable products;
- Easy access to resources, both labor and materials; and
- Re-affirms license to operate.
Therefore, it is important for the companies to be a part of these ratings or indexes and score well. Many of these indexes and ratings use the information provided by the companies through their annual reporting and websites, however increasingly these agencies also ask companies to provide additional information.
Therefore, companies are experiencing an influx of “information requests” from various rating firms. As per CDP, the number of companies reporting to its investor program in 2017, has risen by 33% since 2013, DJSI saw approximately 50% rise in company participation between 2008 to 2017, MSCI received feedback on ESG ratings from approximately 20% constituents of the MSCI ACWI Index in 2016 as compared to 10% in 2015.
While there are many advantages of providing the information, often companies do not respond to these requests due to:
- Lack of knowledge on what information will give them better ratings;
- Time and resource constraint to respond;
- Lack of reportable ESG performance data or availability of standard data;
- Lack of clarity on the range of metrics requested and level of transparency provided by the rating firms; and
- Lack of user-friendly format in the requests received.
To overcome this challenge, at Sustainometric, we help companies and their investor relations team to organize and fill the information requests from various agencies. We leverage our years of experience of working with some of the most prestigious names in the indexes and ratings to enable companies identify the most appropriate answers to the questions in these information requests. We also train companies’ investor relations, sustainability and/or communications team to understand the questions and metrics requested. This improves their ESG ratings resulting in the inclusion into the ESG indices and overall helps creating stronger sustainable brands.