by Hank Boerner – Chair and Chief Strategist, G&A Institute
The professional CPAs working inside a public company, or in the outside accounting firm working with a company may or may not yet be involved in assisting corporate managers in responding to a growing number of third-party surveys focused on the company’s ESG strategies, actions and achievements. Responses to these periodic surveys and engagements by other means with the ratings and rankings organizations are increasingly shaping outcomes – that is, investor opinions of the company.
Many more companies are now receiving surveys from and responding to a growing number of third-party ESG rating providers – and as we are told by our corporate connections, very often managers are straining under the effort to effectively respond given the breadth of information sought and the information available in the corporation.
As we advise corporate managers, it is important to know that there is a publicly-available ESG profile of your company that investors are considering in various ways – and either you will shape the profile and tell the company’s sustainability progress story, or someone else will. That “someone else” would be the global universe of ESG rating providers — and their output is directed to their investor clients. The ones who invest in, or could invest in, your company.
Savvy corporate managers of course “get it” and really make the effort to effectively respond to as many queries and surveys as possible. But what about the internal financial managers and outside accountants – are they involved? At some firms, yes, and other firms no — or not yet.
The Big Four are tuned in to corporate ESG / sustainability disclosure and reporting. But many smaller CPA firms are not.
And among small- and mid-cap publicly-traded firms, the role of the ratings and rankings service providers could still be an unknown and under-appreciated factor in shaping the firm’s reputation, valuation, access to and cost of capital, and other considerations. The article in the influential CPA Journal this month is a worthwhile attempt to educate professional CPAs, whatever their position.
Five professors — co-authors and colleagues at the Feliciano School of Business, Montclair State University — explored the question, “Are Sustainability Rankings Consistent Across Rating Agencies?” One obvious element in the piece that we noticed is something happening in both the corporate sector and investment community: the fluid interchangeability of terms of reference.
Is what is being explored by the ESG ratings and rankings service providers and their investor clients performance related to …CSR (corporate social responsibility)…ESG performance factors (environment/social/
The authors use the terms interchangeably, as do company managers and capital markets practitioners in discussing the ever-more important role that “corporate sustainability rating providers” play in investor decision-making.
They cite the 2014 overview of rating agencies by Novethic Research (7 international rating agencies, 2 non-financial data providers, 8 specialized agencies and 20 local/regional agencies). Several studies and books are identified as reference sources.
Specific CSR rankings examined for 2015 results: Newsweek’s Greenest Companies; Forbes Global 100 Most Sustainable Corporations; and, CSR Magazine Top 100 Global RepTrak companies.
We offer the perspectives of the Journal authors in our Top Story so that you can see what CPA’s will be reading in their Journal.
There are important points raised — but the three rankings examined do not cover the full breadth of the expanding universe of ESG rating organizations. And we are light years away from 2015 in terms of the rating agencies’ influence.
The three rankings cited are not as “investor decision-useful” as would be the analytical work of teams at such firms as MSCI, Sustainalytics, Institutional Shareholder Services (ISS); what was offered in 2015 doesn’t compare to the depth of ESG data available today via Bloomberg and T-R Eikon terminals; the RobecoSAM Corporate Sustainability Assessment (CSA) ratings that influence inclusion in the DJSI; and, volumes of information made available by CDP (formerly the Carbon Disclosure Project).
The G&A Institute team assists corporate managers in responding to these important players and an ever-widening range of third-party ESG service providers.
We’d like to share three basic observations with you and with CPAs: (1) the third party queries are becoming more probing in the information and data sought; (2) the corporate response effort is much more organized and thorough these days; (3) the results of both of these efforts are increasingly important to, and utilized by, the institutional investment community (both asset owners and their managers).
So — the more information that CPAs have about sustainable investing and corporate ESG performance, the better equipped they’ll be to support their clients. The article is a good start in this regard.
The journal authors are academics Betsy Lin, Silvia Romero, Agatha Jeffers, Laurence DeGaetano, and Frank Aquilino.
Are Sustainability Rankings Consistent Across Ratings Agencies?
(Thursday – July 26, 2018) Source: CPA Journal – As more and more companies begin to devote serious attention to sustainability reporting, many different systems of rating the depth and effectiveness of sustainability efforts have arisen. The authors compare three leading…