Harnessing Sustainability Ratings to Move Markets European University at St. Petersburg Dr. Allen L. White 30 September 2013

Harnessing Sustainability Ratings to

Move Markets

European University at St. Petersburg

Dr. Allen L. White

30 September 2013

Peter BakkerPresident, WBCSD; former CEO, TNT

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“I am a capitalist…The mistake currently lies in only expecting (and managing) a return on financial capital. Capitalism requires a new

operating system and needs to be re-booted so that we expect and manage the return on

financial, natural and social capital. Business as usual is not an option for a future-

proofed economy in which nine billion people live well with the limits of the planet by mid-century.”

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About GISR Founders: The Global Initiative for Sustainability Ratings (GISR) is a joint

project of Ceres and Tellus Institute — partners that founded the Global Reporting Initiative (GRI)

Vision: Redefine the definition and measurement of company value creation that incorporates all forms of capital: human, intellectual, natural, social, along side financial

Mission: Create a world class corporate sustainability ratings standard as an instrument for embedding sustainability into company practices and financial markets worldwide

Strategy: Steward a multi-stakeholder and global process comprising: investment managers, pension funds, companies, NGOs, accountancies, academics, governments and raters

Launch: June 2011 Role: A standard setter. GISR will not rate companies; its standard will be

applied by existing and future ratings organizations

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20 Years of Sustainability Metrics• More voluminous– GISR data base: 1500+ indicators/500+ issues– SASB: 900+ indicators; 500+ unique– GRI: G4: 29 issues/149 “disclosures”; sector research:

2800 indicators

• More applications– SRI– Self Assessment– Stock Exchanges– Ratings: Sustainability and Credit…………………. More material? More impactful?

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Sustainability Ratings:What’s the Problem?

Too many indicators Too many issues Too many surveys Too much volatility Too little transparency>>>Curbs utility, uptake, integration, and impact

Opportunity—grow the supply and credibility of quantity of quality ratings; mainstream sustainability, enhance company practices, move financial markets…

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Value Proposition for the GISR Standard

Companies Survey Fatigue Transparency Convergence

Investors Clarity Relevance

Raters Credibility Market Expansion

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Sustainability Information Value Chain

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Standards Ecosystem

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Identify

• GRI – Core universal and some sectoral indicator for sustainability reporting• SASB – sector indicators for US SEC reporting• IIRC – A framework that blends financial and sustainability information rooted in

“vital capitals:” Financial, human, intellectual, manufactured, natural, social

Inform

• GRI – Disclosure guidelines for stakeholders globally• SASB – Disclosures of sector-specific indicators “material” to SEC • IIRC – A framework for for guiding companies on communicating how value is

created preserved

Evaluate• GISR – Standard comprising principles, issues and indicators for measuring

corporate performance excellence

Selected GISR Partners

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Companies Investors

MetanoiaFund

NGOs & Foundations

Sponsors

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Building the Standard: Content and Accreditation

Levels

Component 1: Principles

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Process Assurability Continuous Improvement Impartiality Inclusiveness Transparency

Content Balance Comparability Comprehensiveness Sustainability Context Long-Term Horizon Materiality Value Chain

Exposure Draft>>>Beta>>>Version 1.0: November 2013

Example 1: A Balancing Act--Transparency

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Companies: Essential for performance improvement

Raters: IP is part of the business model

Investors: Essential for informed choice and application

Thus, transparency of what, to whom and in what form?

Example 2: A Balancing Act – Comprehensiveness and Sustainability Context

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X1

Baseline year

Peer comparison

PerformanceToday

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CompanyGoal

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STAR

T LI

NE

SUSTAIN

ABILITY CON

TEXT - FINISH LIN

E

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Credit Ratings:The Next Sustainability Frontier

• Sustainability ratings rate companies

• Credit ratings rate debt issues

• Companies, public and private, float issues

>>>>>Credit markets=$10’s trillions/year

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State of Play – Credit RatingsNumber of Outstanding Credit Ratings by Category of Credit RatingNRSRO Financial

InstitutionsInsurance Companies

Corporate Issuers

Asset-Backed Securities

Government Securities

Total Ratings

AM Best N/R 4,826 1,910 56 N/R 6,792

DBRS 21,695 151 4,037 9,889 15,798 51,570

EJR 101 51 962 13 9 1,136

Fitch 54,586 4,010 14,427 58,315 217,198 348,536

JCR 163 27 478 N/R 54 722

KBRA 16,127 52 1,001 40 58 17,278

Moody’s 56,486 3,953 30,439 93,913 814,087 998,878

Morningstar N/R N/R N/R 16,070 N/R 16,070

S&P 60,700 7,800 45,400 108,400 948,300 1,170,600

Total 209,858 20,870 98,654 286,696 1,995,504 2,611,582

16Source: NRSRO Annual Certifications, 2011

Sustainability: Embedded in Business Risk Profile

S&P’s Corporate Ratings Methodology: Business and Financial Risk MatrixFinancial Risk Profile

Business Risk Profile

Minimal Modest Intermediate Significant Aggressive Highly Leveraged

Excellent AAA/AA+ AA A A- BBB --

Strong AA A A- BBB BB BB-

Satisfactory A- BBB+ BBB BB+ BB- B+

Fair -- BBB- BB+ BB BB- B

Weak -- -- BB BB- B+ B-

Vulnerable -- -- -- B+ B B- or below

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Ratings 2020: Companies and Credit

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Ratings 2013

STAR

T LI

NE

RATINGS 2020 FIN

ISH LINE

Financial Ratings

Sustain. Ratings

Ratings 2020

Financial Ratings

Sustain. Ratings

Integrated Ratings

Sustainability Ratings 2020

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RATINGS TODAY RATINGS 2020

Voluminous surveys burden companies; underinvestment in

sustainability by investors.

Common survey for core information and accompanying

supplements. Ratings harmonization without over-prescriptiveness.

Lack of transparency impairs application to performance

improvement and investor uptake

Users’ Guide to Sustainability Ratings and GISR Principles enhance

transparency, utility and value of ratings for financial markets

Lack of materiality leads to information overload

GISR standard drives convergence toward material issues and

indicators

Financial markets minimally integrate sustainability information

GISR builds ratings credibility and spurs market expansion for high

quality ratings

An Invitation

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Support GISR’s Standard Development Activities Technical Committee, Expert Advisor Committee, feedback

on public exposure and beta versions: www.ratesustainability.org

Join the Supporting Stakeholder Program A growing multi-stakeholder network of supporters

http://ratesustainability.org/get-involved/become-a-supporting-stakeholder/

Contact GISR to Explore Opportunities for Collaboration : http://ratesustainability.org/contact-gisr/

Thank you

For more information:www.ratesustainability.org

[email protected]

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