Peter Knight on the hope for better ratings

Will standardized sustainability ratings prevent the next BP-type blowout?

That’s what the promoters of the Global Initiative for Sustainability Ratings (GISR) are hoping for. Some hope, but certainly worth a try.

The GISR is brought to us by the same people who devised the Global Reporting Initiative (GRI) – a strong pedigree. They are the Tellus Institute, a Washington think tank, and Ceres, the leader of a coalition of investors, environmental groups and other public interest organizations.

There is certainly a need for standards in sustainability ratings. All manner of organizations – some no bigger than a brainy person and a chihuahua – provide ratings for investors who are increasingly interested in companies that have got their head around sustainability. The problem is that there is very little consistency in the way raters rate, making it confusing for investors. And that’s where the value of the GISR comes in.

Ceres and Tellus argue that if all raters stuck to the same format, investors would get a better picture of company performance and potential. This would prevent the next gulf explosion, or at least identify dodgy operators.

There’s a strong element of wishful thinking here. GISR promoters ignore the competitive nature of ratings. Rating agencies are jostling for position in a small, crowded and rapidly consolidating market. They want to be known for the beauty of their algorithms. They can’t afford to commoditize their offering.

The battle for acceptance of the GISR has begun. Given Ceres’ record, and backers like Bloomberg, we would give them good odds on winning if they can maintain their stamina over the long haul.

More from Ceres: www.ceres.org/press/press-releases/a-single-measure-unbiased-results-ceres-tellus-unveil-global-initiative-for-a-standardized-comprehensive-corporate-sustainability-rating

See also Tellus: www.tellus.org

Bloomberg: www.bloomberg.com/about/sustainability/