A common topic of discussion among clients is how reporting can influence ESG ratings. It’s a valid question.
After all, these ratings can impact access to capital, with many funds and asset managers incorporating ESG scores into investment decisions or using them as an investment filter. The answer, as CRI Senior Strategist Elana Goldstein explains, is that public disclosure via reporting can influence ratings a great deal, and it’s one of the few factors within a company’s control. Learn more about why this is the case, why scores can differ, and why that’s okay.
Uncovering More Ratings Insights
One way to begin more actively managing ESG ratings is to conduct a gap analysis between raters’ criteria and current disclosures. But when raters use different methodologies and KPIs to score companies, how do you decide which gaps are the most worthwhile to close? In other words, how do you discern a clear path forward when you’re comparing apples, oranges and bananas. That was the question an energy company posed to us recently.
Our solution involved applying AI to create a heat map that revealed which gaps were most common across a range of raters. This map enabled us to rank topics based on the level of convergence among raters: the higher the convergence, the higher the impact of closing a gap. Then, we held a disclosure workshop to walk the sustainability team through proposed actions that could close an identified gap. In turn, the team ranked each action by its level of complexity and the time horizon needed for closure. The result? The team walked away with a robust to-do list that could be tackled in a thoughtful and strategic manner.
In a similar assignment, a specialty retailer’s sustainability and finance teams wanted to better understand what sort of ROI could be generated by pursuing higher ratings. Since the company’s shares already were held in many of the tracking funds for various raters, we helped them reframe the question to be, “Can improving our scores give us additional access to capital?” In response, we explored how key ESG fund methodologies use ESG scores and what that means for the client’s strategic engagement with rater/ranker organizations. Understanding how ESG scores are used is key to unlocking how to manage these scores.
Integrating rater and ranker priorities into sustainability reporting strategies is something CRI works on regularly with clients. If you’d like to talk through what that looks like for your company, we’d welcome the conversation.
In recent years, CRI has been on a soapbox about the need to link sustainability initiatives with business value. There’s no better demonstration of that than companies with integrated strategies. But what does that mean? And what does it look like?
CRI ESG Analyst Alex Matt recently completed a four-part series that identified companies that are successfully combining sustainability and business strategies and analyzed hallmarks and best practices across them. Find the full Integration Unpacked series here:
Mark your calendars to take a summer break with us. CRI creatives will lead a fun “show and tell” discussion that demonstrates emerging trends in report design, as well as examples of reports that are combining text, data and graphics to produce compelling reads.
