Ceres, Tellus launch global initiative for a standardized, comprehensive corporate sustainability rating
Ceres and Tellus Institute, two organizations that work with companies, investors and nonprofit groups to embed sustainable practices in capital markets, have launched an initiative to create and bring to widespread adoption a single standard for rating the sustainability performance of companies.
Founding partners of the new coalition, the Global Initiative for Sustainability Ratings (GISR), include leading investors and businesses such as TIAA-CREF, the Calvert Group and Bloomberg. The initiative will be modeled on a Ceres/Tellus-launched program, the Global Reporting Initiative, that is now used by 2,000 companies worldwide for corporate reporting on environmental, social and economic performance.
The simply-stated goal of this system is to avoid the next BP disaster.—Ceres President Mindy Lubber
Ceres and Tellus have long maintained that sustainability risks are normal material risks in the business sense, and as such are a necessary part of disclosure if investors are to accurately assess a company’s long-term prospects and global impacts.
Ceres and Tellus say that BP is a case in point concerning the current system’s failings. Prior to last year’s Gulf oil spill, and well after BP’s fatal Texas oil refinery disaster and other major violations, there were no credible ratings that flagged BP as a material risk to investors. Even investor screens like the Dow Jones Sustainability Index held BP’s stock for a long time before divesting at a significant loss to shareholders.
Every day, ratings play a pivotal role in determining access to capital—and its cost—for everything from public company stocks to all types of bonds. More than a decade of sustainability ratings has provided a wealth of experience in measuring the long-term horizons, social equity, and environmental stewardship of companies and their major investors.
But the proliferation of scores of sustainability ratings providers has also spawned inconsistent and often opaque approaches and, in some instances, conflicts of interest among raters and rated companies, plus widespread “survey fatigue” among companies responding to information requests by multiple raters. These conditions have led some companies to cherry pick results that are most favorable while sidestepping less favorable ratings.
Ceres and Tellus say that these factors compel the creation of an independent, non-commercial framework that builds on the current system’s strengths and corrects its shortcomings, thereby unleashing the full power of ratings to drive sustainability deep into capital, procurement and consumer markets.
We need a new powerful instrument to steer capital—financial, human, social and natural—toward sustainability leaders and away from the laggards. With global sustainability crises from climate change to water shortages, resource pressures and population growth more evident every day, it’s time to build a ratings system that distinguishes between those companies that clearly see and act upon sustainability opportunities and risks and those that don’t.—Mindy Lubber
GISR aims to create a benchmark standard rooted in technical excellence, impeccable integrity, and continuous improvement, via a process involving multiple stakeholders.
The GISR initiative is about creating a world-class, transparent ratings system. GISR will help drive capital, procurement and consumer markets toward companies committed to continuously higher standards of sustainability excellence. Getting this right matters; if we aren’t infusing sustainability into all ratings frameworks, both financial and non-financial, we are losing precious time in the race toward shifting markets to sustainable outcomes. That’s why GISR is an idea whose time has come.—Tellus Institute Senior Fellow Allen White
White and Lubber see a future where the GISR system is embedded in the listing requirements of stock markets, in disclosure requirements of securities regulation, in the contractual relationships between asset owners and managers, and in government procurement programs worth hundreds of billions of dollars.
GISR will achieve its mission over the coming year in two phases, each convening a broad group of stakeholders. The first will systematically evaluate the quality of existing ratings programs from both a process and content standpoint. Then the group will design a best-practice ratings framework as a benchmark for use by raters and ratings users. The two activities will be conducted through an independent and non-commercial process.
As the newly-developed ratings framework enters the market, a GISR Board of Directors will evolve with the expectation that GISR will gradually morph into a stand-alone, non-profit, global organization.