Hear Victoria Cross, Consulting Partner at ERM, outline three key business takeaways from the Rate the Raters report 2023 - ERM Sustainability Institute's survey of how investors and companies rate ESG raters and their services. The takeaways include strategies for disclosing material information, engaging investors and applying the EU’s Corporate Sustainability Reporting Directive.
Victoria Cross: This year's Rate the Raters study clearly highlights rising concerns from corporates and investors about the accuracy, overall quality and usefulness of ESG ratings. For those businesses grappling with which questionnaires to prioritize, our surveys and interviews with investors and corporates show that CDP and S&P Global are clear leaders for quality and usefulness.
With more investors than ever before claiming to use ratings to help inform ESG decision making, ratings questionnaires clearly can't be ignored. So, with overall trust in the accuracy of the ratings being low, what can corporates do to plug the gap? There are three key actions to prioritize.
1. Material disclosure
Focus on understanding and disclosing what's most material to your business and your internal and external stakeholders. Work hard to understand the risks, impacts and opportunities presented both to and by your business and your value chain. Then you can decide what you will measure and how you will disclose it.
2. Investor relations
Work with your Investor Relations team and get to know and understand your share register from an ESG perspective. As well as taking the time to find out which ESG ratings your largest investors rely on, understand the requirements of any aspirational future ones. Make sure that your disclosures align, not just once a year in your sustainability report, but in all external communications, including quarterly results and on your website.
Use any opportunity you can to add a narrative to your data, especially when explaining metrics which might not quite be where you want them to be just yet. And while as a privately owned company, you might not have an IR team, the same principles should apply in getting ready for the next phase of your evolution as a firm.
Remember, this is not just about shareholders. Over $3.5 trillion of capital has already been raised via green bonds for the highest ESG performers. It's crucial to fully align your sustainability strategy, goals and KPIs to make sure that you are not missing out on this lower cost of capital.
3. Apply CSRD
If you're operating in the EU, use the Corporate Sustainability Reporting Directive (CSRD) as an opportunity. Use it to engage your internal stakeholders like never before to understand the genuine and positive impact your organization can have.