What Are the Hallmarks of a Good Sustainability Rating System?

The world is awash in CSR ratings and rankings, with dozens of different groups using their own unique methods to assess corporate sustainability performance and rankings. But as with any green label, it's hard to know how well a given system actually measures and tracks the environmental and social performance of the companies it rates.

To try and clarify the complicated and at times overlapping world of sustainability ratings, the British consultancy SustainAbility kicked off last spring a four-part project called Rate the Raters and has just published the third report on the project.

Part three looks at the best practices among 21 different rating systems, from Good Guide to Climate Counts, from Newsweek's Green Rankings to the Carbon Disclosure Project, and many others. And although the report doesn't give each rating a score, it does call out some of the similarities, good and bad, that existing in the universe of sustainability ratings.

First and foremost, the report states that there are simply too many indistinct and overlapping ratings out there:

We find significant overlap and too much generality among the objectives of different ratings. Too many fail to explain clearly why their rating is distinct and how it creates value for companies and other stakeholders. We do not believe that the typical subject of ratings -- large, multinational companies -- need to be faced with multiple ratings to understand that improving performance and transparency is important. This may have been the case a decade ago, but today most companies appreciate this.

Beyond the news that not every rating system is completely necessary, the report offers a number of key takeaways as to what makes a good rating system:

Transparency = Trust = Value. Ratings which users perceive to be of highest value tend to be the ones that are most transparent. Raters who seek to keep their methodologies secret must realize that people are more likely to trust their rating -- and thus adopt it -- if they understand it.
Simple is Beautiful. In the race to stand out from the crowd, many ratings are becoming highly complex, but the analysis found some of the best ratings to be the simplest: again, understandability is critical to fostering trust.
Focus on the Future. Too many ratings focus on companies' current or past performance rather than on how they are positioned to deliver sustainable value going forward. The ratings that survive and prosper will be those that favor the winners of the future.
Double Down on Quality. As an increasing number of investors, consumers, employees and other stakeholders follow and make greater use of sustainability ratings, it is imperative that raters improve their efforts on quality assurance and control.
Get Cozier with Companies. Lastly, raters won't be able to "Focus on the Future" unless they invest considerably more time directly engaging with the companies they rate. The majority of ratings today are based on arms-length assessments of performance. This is possible due to the nature of today's ratings and often necessary given organizational limits and ratings' scope . Going forward, we believe that every rater can and should spend more time with the companies they assess, and that there are myriad benefits to doing so (e.g. gain stronger understanding of their businesses, verify publicly reported information, help companies understand ratings and improve sustainability performance).

The full report, "Rate the Raters Phase Three: Uncovering Best Practices," is available for download from SustainAbility.com.