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The Current State and Evolution of Corporate Sustainability Assessment Organizations

CDP, RobecoSAM, EcoVadis — they are all organizations that assess the sustainability performance of companies worldwide. They all have their own agenda and targets, and of course, their own methodology to assess a portfolio of companies.

CDP, RobecoSAM, EcoVadis — they are all organizations that assess the sustainability performance of companies worldwide. They all have their own agenda and targets, and of course, their own methodology to assess a portfolio of companies.

Globally, +/- 60 percent of companies that publicly communicate sustainability data are answering to sustainability assessing organizations(1)(2). It is not an easy task: A survey of sustainability managers internationally has identified that replying to sustainability questionnaires was the biggest pain point in sustainability data management in 2016(3).

We did some research and interviewed experts to understand what can be learned from the scoring/ranking provided by assessing organizations and what’s coming for companies that are or will be assessed.

Bertrand Desmier, Sustainability Business Line Director at Tennaxia, is unambiguous: “Companies are receiving more and more demands each year from rating agencies and the topics are becoming more challenging with in-depth questions.”

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Globally, companies reporting on sustainability are predominantly responding to CDP, RobecoSAM and EcoVadis(1)(2). Others organizations such as Sustainalytics, MCSI, Viego-Eiri, Oekom Research, Gaia Index, FTSE4Good and Bloomberg are also assessing companies based on sustainability, but are used more or less frequently depending on the region.

There are two types of assessing organizations: Those serving investors and those serving large companies focused on risks and opportunities in their supply chain. CDP does both, while EcoVadis is focused on the supply chain and DJSI RobecoSAM serves investors.

Who responds to sustainability assessing organizations?

In 2016, CDP sent worldwide, investor-backed disclosure requests to every publicly traded company; 1,089 companies disclosed their data. The same year, EcoVadis evaluated 20,400 companies (80 percent are considered SMEs) around the world(4). In 2017, 942 of the 3,400 world largest invited companies participated in RobecoSAM’s Corporate Sustainability Assessment(5).

Who uses sustainability ratings and scores, and why**?**

Assessments that included ratings and rankings are typically used by investors and procurement teams to make better decisions in their investment strategy and to minimize risk for the business.

“EcoVadis is different from financial sustainability ratings in that we provide information used in commercial relationships. Through a SaaS procurement solution, we enable our clients to monitor their portfolio of suppliers.

Depending on their own priorities and strategy regarding their supply chain, we can help them identify risk categories of suppliers; assess, view ratings and scorecards of suppliers; and work together to improve their performance and transparency.”
David McClintock, Marketing Director at EcoVadis

In a recent study, EcoVadis and HEC business school compared the reasons driving sustainable procurement between the US and Europe. Risk mitigation, brand reputation and compliance are the three major drivers. With recent regulations such as the California Supply Chain Transparency Act, the UK Modern Slavery Act, the Dodd-Frank Act on Conflict Minerals, and the “Devoir de vigilance” in France, this trend should only grow with time.

Sustainability/ESG scores and rankings aren’t only used by investors and procurement teams. Companies themselves are using them to assess their performance and to compare to peers.

Ranking can also be a way to leverage some key topics internally. By nature, companies are competitive; they don’t like to be the last in class, thus enabling sustainability managers to leverage material sustainability topics internally.

Questionnaires from assessing organizations often involve several departments, especially with RobecoSAM, which screens on average over 20 different criteria in 60 industry-specific questionnaires, including information on climate change, tax strategy, human rights, risk mitigation, governance, etc. It enables sustainability departments to engage with internal stakeholders.

“Companies tell us that they see real business value in the process that needs to be established to answer the RobecoSAM CSA (Corporate Sustainability Assessment). Aside from potentially securing the company a place in the coveted DJSI, we are often told that it also creates a network within the company and incorporates sustainability thinking in companies’ DNA.”
Robert Dornau, Director of Sustainability Services at RobecoSAM.

Public rankings, such as the ones from CDP and RobecoSAM, are promoted by companies themselves when they perform well. Media and NGOs are also relaying this information, increasing public awareness on the subject. CDP even uses the name-and-shame method by publicly disclosing the names of the companies that don’t answer to its invitation to participate.

Working toward a more standardized approach

Companies experience survey fatigue as they receive dozens of requests from assessing organizations(3) and often not under the same formats. On the other side, investors acknowledge the increasing amount of ESG data available, but a lack of standardization makes it difficult to compare companies(7).

Though there are two types of assessments (for the investment community and for companies focusing on supply chain risks and opportunities), we see assessing organizations trying to reduce the work for respondents.

“EcoVadis has a partnership with CDP, enabling us to access the data provided to CDP by our clients — it reduces the number of times our clients have to provide their data on climate change,” McClintock said. “Perhaps more importantly, we support industry initiatives, including TfS in chemicals, GeSI-ETASC in ICT, Railsponsible and AIM-Progress in food and consumer goods, which have standardized on the EcoVadis rating for CSR assessment of suppliers. This is vastly simplifying the process for suppliers to share results to multiple clients.”

Others, such as RobecoSAM and its CSA, align their questionnaires with different organizations. “RobecoSAM works with CDP, GRESB or the London Benchmarking Group. Climate Strategy questions are aligned with GRESB. We try to ask questions in a way that companies reporting according to GRI can recycle their efforts and easily identify how they can reference their GRI reporting in our questionnaire. We’re very aware of companies’ reporting burden and we actively try to ease it by aligning our questionnaire with other organizations’ questionnaires,” Dornau said.

Some will try to consolidate their teams, such as French sustainability rating agency Viego, which merged with Eiris in 2016 to provide European investors with stronger ESG information and research.

There is definitely a dynamic here — assessing organizations are trying to align and reduce the work for responding companies and provide more standardized and meaningful data to their clients. However, this space is still relatively young, new topics of interest are emerging, and stakeholders are requesting material information with KPIs. In this context, it is not possible yet to have a standardized approach.

“10 to 15 percent of the RobecoSAM questionnaire changes every year. Our questions need to be challenging enough to allow us to differentiate between the top 10 percent of companies. We like to keep companies on their toes with regards to emerging topics or increasing disclosure expectations. This is what companies like about RobecoSAM,” Dornau said. “When we add new questions, around 20 percent of companies are ready to answer and have good answers. 80 percent are not yet ready but they use our questions as incentives to address new topics internally. Consequently, we see them improve in future years.”

What can assessing organizations teach us about the current state of sustainability disclosure?

Experts agree that companies are getting better at disclosing information. RobecoSAM had an increase of participating companies from 867 to 942 between 2016 and 2017. In France, Desmier noticed a “click effect”: Once companies start to disclose, they don’t backtrack; they tend to engage with their suppliers on transparency, pressuring them to disclose more about material topics. There is also peer-to-peer competition pushing companies to be more performant and transparent if their competitors are doing so.

According to Dornau, this year RobecoSAM upgraded its CSA with questions about “policy influence and impact measurement and evaluation. New topics introduced in recent years were tax strategy, materiality, human capital development. There is also the evolution of existing criteria, e.g. supply chain, that expanded the required transparency beyond basic information. The human rights-related questions were also made more challenging this year, focusing on due diligence, assessment and disclosure.”

According to EcoVadis’ latest Barometer(8), there is also a big trend of assessing the supply chain on specific sustainability topics, with 75 percent of organizations using sustainability data when selecting new suppliers; 63 percent having specific sustainability weighting requirements when managing RFPs, RFXs and tenders; and 58 percent using sustainability data for their annual supplier evaluations. However, according to the same study, assessments remain primarily with tier-one suppliers.

According to Desmier, there is no escape: “There is a constant, continuous and more precise questioning of companies, and it won’t stop anytime soon.” Sustainability assessing organizations are one way for various stakeholders to assess companies’ disclosure and performance. The public is now more aware of this topic and “we saw recently in the press a couple of companies being sued for lack of transparency, which is relatively new,” Desmier said.

It also means that companies must not only be transparent but ensure the quality of their data. Civil society, as well as investors, don’t easily trust the accuracy of the data provided by companies and are calling for verification.

To encourage companies, assessing organizations often allocate better scores to companies that can prove data have been verified by an independent third party. Others, such as EcoVadis, are investing in technology to improve the quality of their assessment and the efficiency of the process.

Increasing the scope of sustainability reporting is also a trend: People now want companies to be transparent about their activities, their impact on local communities, and in their supply chain. McClintock said EcoVadis is working on “having better geographic coverage; we want to be able to assess every supplier, wherever they are in the world” — highlighting that disclosure is not only a topic for European and North American countries but for the world in general.

New services help companies reply to questionnaires and perform better. Tennaxia, for example, provides consulting services and technology, helping clients with their sustainability strategy, defining the right content to report, collecting high-quality data and communicating it to various stakeholders, including sustainability assessing organizations. EcoVadis provides services to its clients, as well as to suppliers, with a Suppliers Capacity Improvement Tool. RobecoSAM regularly organizes webinars and practitioner workshops to support and educate companies on the questionnaire’s aim and content.

Sustainability assessing organizations are not going anywhere anytime soon; on the contrary, the pressure seems to only increase to push companies toward transparency. While some organizations are working to standardize how companies should report, be questioned and how investors can use sustainability/ESG data, it is not yet a mature field. There is still a lot of work in terms of defining material content for companies and investors, and the quality of data that is reported.

(1) ReScore 2017 – Best Practices in Sustainability Data Management, International Benchmark

(2)Tennaxia — 5ème édition, étude Pratiques de Reporting RSE et Rapports Extra-financiers

(3) ReScore 2016 — The Pain Points of Sustainability Managers Across the World, International Benchmark

(4) EcoVadis Global CSR Risk & Performance Index 2017

(5) DJSI 2017 Results Review

(6) Bloomberg Professional Services, The growing role of ESG investing in portfolio management, June 8th, 2017

(7) Bloomberg Investors relation, Investors seeking consistent ESG disclosure, research finds, May 4th, 2017

(8) HEC/EcoVadis 2017 — 7th Sustainable Procurement Barometer

(9) CSE — Sustainability Reporting Trends in North America 2017