For decades, institutional investors have relied on credit rating agencies such as Moody’s and Standard & Poor’s to assess the credit risk of debt securities issued by corporations.
Today, the majority of investors (79%) now use ratings agencies to evaluate ESG risks to help inform their equity investment and voting decisions. In addition, shareholder proponents are developing and publicizing benchmarks and scoring systems that inform their proposal submission strategies.
When it comes to ESG ratings, for companies to obtain optimum results, directors and management need to know what information rating agencies take into account in determining company scores. Frequently, despite best efforts, company scores are inaccurate or inconsistent. Companies may believe they’re on the right track, focusing considerable effort and investment on ESG, but still receive low ratings and rankings.
Making sense of ESG ratings, rankings and scores
There are currently over 150 organizations whose purpose is to provide ESG data to corporations and asset managers, with over 600 analytic products available to provide in-depth analysis. But, across those 150 ESG data providers, there is a significant discrepancy in the way they rate and rank companies. Without a universal ESG rating structure in place, and with so many in play, it can be confusing to determine what scores even mean and where companies may need to make improvements – a task made even more difficult as investor preferences and market expectations are constantly evolving.
The bottom line is, you need to know what’s determining your scores, what’s most important to your investors, and where you need to focus.
Why your scores matter
Simply put — because institutional investors, fund advisors and shareholder proponents are taking a long, hard look at this information. ESG has become a key factor in investment strategies and stewardship decisions. Employees, customers, communities and regulators are also paying attention. With the major players in the market taking a position, it’s more important now than ever before to understand what your scores are saying about your company.
Strong ESG scores
Attract long-term investors seeking strong risk-adjusted returns through inclusion in ESG-focused indices.
Weak ESG scores
Increasingly lose investors and see stock prices drop.
Taking a position
Voted against 53 climate laggards in 2020. 191 “on watch” for 2021
Voting against ESG laggards identified by R-Factor ESG rating system
Climbing support of climate-focused shareholder proposals
Building proprietary ESG rating system that will influence voting decisions
Divesting climate laggards and overweighting climate leaders
“We support the framework created by the Task Force on Climate-related Financial Disclosures for disclosing strategy, risk management, governance, metrics, and targets. We expect the TFCD to continue to gain acceptance as a global standard.”
“We believe a company’s ESG scores will soon effectively be as important as its credit rating.”
“We are firmly supportive of (SASB and TFCD) disclosure approaches and have been encouraged by rapid industry adoption as well as progress toward global convergence in sustainability standards.”
How Georgeson can help
Georgeson’s ESG Ratings Guidance decodes it all, providing you with valuable insight into what these ratings mean, identifying the score(s) that matter most, as well as gaps that may exist between scoring methodologies and your current public disclosures.
We maintain a proprietary investor database that is continuously updated with new and revised information, including that relevant to ESG, as it becomes available. We mine this vast store of data to determine the methodologies and disclosures most important to your investors.
With Georgeson’s ESG Ratings Guidance, you will:
- Know which scores you should focus on and why they matter, whether they are relevant to a particular index you want to join, or if they are of importance to your top investors or shareholder influencers.
- Learn where you may be able to address gaps in your ESG reporting to help improve your scores.
- Have support with data review requirements including preparing you to engage with different rating agencies and completing rating/score questionnaires (such as CDP or S&P CSA).
- Learn where your current report stands and any areas where it may have incorrect information.
Georgeson’s ESG Ratings Guidance unravels the many intricacies that exist between rating agencies, scoring systems, and investor-favored disclosures and reporting. We provide the clarification and details that can help you get the ESG credit you deserve.
No matter what stage in your journey, Georgeson will help you conquer your ESG challenges.
Our advisory services help you understand your own, unique ESG landscape, advance your practices and communicate with investors effectively.