Exploring Expert and Investor Views on ESG Ratings June 2019 - PowerPoint PPT Presentation

Exploring Expert and Investor Views on ESG Ratings June 2019

Introductions Christina Wong Michael Harvey Director Senior Manager

Rate the Raters 2010 - 2018 In May of 2010 we launched a multi-phase research program entitled Rate the Raters (RtR) aiming to shed light on the universe of corporate sustainability rankings. We are now re-engaging this topic through a series of surveys and interviews.

Rate the Raters 2019: Expert Survey Results AVAILABLE NOW: sustainability.com

Overview of Survey Respondents Online questionnaire completed in the fall of 2018 by 319 experienced sustainability professionals. Thank You Experience Geography Respondents have the following experience working on Experts surveyed span 60 countries in the following regions: sustainability issues: 39% 35% sustainability.com Europe 12% 66% North America 29% 8% Asia info@sustainability.com UK: +44 751 912 2103 5 to 10 3 to 4 More than 10 3% years years years US: +1 510 982 5003 6% Africa 4% Latin America Oceania

Sectors Familiarity Respondents were drawn from the following sectors: Seventy-nine percent of respondents noted they were familiar with ESG ratings, with familiarity varying by sector: Thank You Total 79 93 Corporate 51% 22% 11% Corporate Service Academic Other 75 & Media & Research Service & media 70 sustainability.com NGO 59 Academic/Research/Th info@sustainability.com 57 ink Tank UK: +44 751 912 2103 Government 45 8% 3% 4% US: +1 510 982 5003 NGO Government Other

What Makes a Good Rating Thank You sustainability.com info@sustainability.com UK: +44 751 912 2103 US: +1 510 982 5003

Data sources, methodology and materiality shape perceptions of rating Respondents agree on credibility of data sources being the most important factor in determining the quality of a rating. Question Please rate the importance of each of the following factors when determining the quality (i.e., excellence, robustness and accuracy of evaluation) of an ESG rating. Please use a 5-point scale where 1 is not important at all and 5 is very important. (Total number of responses to question (n) =319 2018: Factors determining rating quality, bars indicate % of respondents who selected each score Credibility of data sources 95 1 Unprompted answers: In addition Quality of methodology to being asked to evaluate the 92 2 above list of prompted quality factors, experts were given the Focus on relevant/material issues 90 1 option to add any “other” factors they believed contributed to quality. The most commonly mentioned Experience/competence of research team 80 2 other factors were: Consistency • Disclosure of methodology 80 3 External validation • Independence of the raters • Common usage by investors and/or other stakeholders 66 8 Important (4+5) Corporate/stakeholder involvement in evaluation process 8 65 8 Not Important (1+2)

Ratings Quality Thank You sustainability.com info@sustainability.com UK: +44 751 912 2103 US: +1 510 982 5003

Unprompted, RobecoSAM, MSCI, CDP and Sustainalytics are mentioned most often as highest quality ratings RobecoSAM was by far the most frequently mentioned ESG rating by sustainability experts. Question Which ESG ratings do you consider to be of highest quality (i.e. excellence, robustness and accuracy of evaluation). Please consider both broad, combined ESG ratings and those specific to individual industries or ESG issues. Please enter a maximum of 3 ESG ratings in the spaces provided. (n=319) 2018: ESG ratings quality: Bars represent number of respondents who listed each rating RobecoSAM Corporate Sustainability Assessment 130 MSCI ESG Ratings 86 CDP Climate, Water & Forests Scores 85 Sustainalytics’ ESG Risk Ratings 77 ISS-Oekom Corporate Rating 29 FTSE Russell’s ESG Ratings 29 Bloomberg ESG Performance Scores 26 Vigeo Eiris Sustainability Rating 16 ISS (not specified)/ISS Ethix 13 EcoVadis CSR Rating 9

CDP and RobecoSAM are judged most favourably in forced quality rating CDP and RobecoSAM received the most high scores from respondents that were asked to evaluate the quality of 11 specific ESG ratings. Question Please rate the following ESG ratings based on: a) Quality (i.e., excellence, robustness, and accuracy of evaluation). Please use a 5-point scale, where 1 is very low quality and 5 is very high quality. 2018: ESG ratings quality, bars indicate percentage of respondents selecting each quality score CDP Climate, Water & Forests Scores (n=244) 67 5 9 RobecoSAM Corporate Sustainability Assessment (n=245) 66 8 8 Sustainalytics' ESG Risk Ratings (n=224) 54 7 15 MSCI ESG Ratings (n=210) 51 10 11 Bloomberg ESG Performance Scores (n=191) 42 12 14 ISS-Oekom Corporate Rating (n=149) 42 11 18 FTSE Russell's ESG Ratings (n=185) 41 12 16 ISS QualityScore (n=120) 38 8 25 EcoVadis CSR Rating (n=164) 32 15 15 High quality (4+5) Thompson Reuters ESG Scores (n=113) 29 11 25 Low quality (1+2) Vigeo Eiris Sustainability Rating (n=160) 27 14 19 DK/NA

Expert perceptions of ratings are similar across Europe and North America Respondents in Europe and North America hold similar views on quality except for the ISS Quality Score. Question Please rate the following ESG ratings based on: a) Quality (i.e., excellence, robustness, and accuracy of evaluation). Please use a 5-point scale, where 1 is very low quality and 5 is very high quality. 2018: European and North American perspectives on ESG ratings quality, bars indicate % of respondents who selected a rating as high quality (4+5) 74 CDP Climate, Water & Forests Scores 67 63 RobecoSAM Corporate Sustainability Assessment 67 61 Sustainalytics' ESG Risk Ratings 55 54 MSCI ESG Ratings 51 40 ISS-Oekom Corporate Rating 42 46 Bloomberg ESG Performance Scores 40 46 FTSE Russell's ESG Ratings 33 38 EcoVadis CSR Rating 31 26 Vigeo Eiris Sustainability Rating 28 33 Thompson Reuters ESG Scores (replacement of ASSET4) 26 53 ISS QualityScore North Europe 21 America

Rating Usefulness Thank You sustainability.com info@sustainability.com UK: +44 751 912 2103 US: +1 510 982 5003

RobecoSAM and CDP judged most favourably in forced usefulness rating Perceptions of usefulness map closely to perceptions of quality with RobecoSAM, CDP, Sustainalytics and MSCI again at the top. Question Please rate the following ESG ratings based on: b) Usefulness (i.e., how useful they are). Please use a 5-point scale where 1 is not useful at all and 5 is very useful. 2018: ESG ratings usefulness, bars indicate % of respondents selecting each usefulness score RobecoSAM Corporate Sustainability Assessment… 53 16 11 CDP Climate, Water & Forests Scores (n=244) 52 14 12 Sustainalytics' ESG Risk Ratings (n=224) 49 8 15 MSCI ESG Ratings (n=210) 48 14 14 Bloomberg ESG Performance Scores (n=191) 37 15 17 ISS-Oekom Corporate Rating (n=149) 34 16 19 FTSE Russell's ESG Ratings (n=185) 33 16 17 EcoVadis CSR Rating (n=164) 29 20 17 ISS Usefulness Score (n=120) 28 15 30 Useful (4+5) Thompson Reuters ESG Scores (n=113) 22 16 28 Not useful (1+2) Vigeo Eiris Sustainability Rating (n=160) 19 25 21 DK/NA

How ESG Ratings Are Used Thank You sustainability.com info@sustainability.com UK: +44 751 912 2103 US: +1 510 982 5003

Corporates use ESG ratings to inform decision-making Seventy-two percent of corporate respondents say ESG ratings are useful for informing decision-making. Question Has your organization used any ESG ratings to inform decision-making? (n=319) 2018: Organizations’ use of ESG Ratings to inform decision-making by sector, bars represent % of respondents Total 54 45 Corporate 72 27 Service/Media 44 56 Other 42 58 NGO 30 70 Government 27 73 Yes Academic/Research/Think Tank 20 74 No

In their own words: How sustainability experts use ESG ratings Question Which ESG ratings has your organization used to inform decision-making and in what way? (n=150) Internal assessment and Data collection and Gap analysis and trends Stakeholder engagement strategy development disclosure “DJSI and Sustainalytics helps us to “We use our own ESG ratings to help “All ESG ratings inform what data “DJSI has been used as an internal understand what areas need more steer our stakeholder engagement, we collect and compile so we can be assessment tool since it is so attention from our teams.” priority actions and disclosures. responsive. Impact on business comprehensive. The CDP has served decisions is minimal.” the same purpose.” “We use DJSI, MSCI and CDP to “…used as an engagement tool with benchmark against industry and “High quality ratings are used to assess internal stakeholders, which may identify gaps so that we can 1) “DJSI, Sustainalytics, MSCI, CDP – performance and disclosure as well as lead to change in practices.” improve on responses to questions in for identifying areas of strength design and prioritize improvement the areas, and 2) to improve business and opportunities.” plans.” practices.”

Initial Investor Perspectives Thank You sustainability.com info@sustainability.com UK: +44 751 912 2103 US: +1 510 982 5003