Following up on its May 4th announcement, RobecoSAM in partnership with Bloomberg released the percentile ranking results from its Corporate Sustainability Assessment (CSA) to the Bloomberg Terminal today. Based on the information provided in last week's webcast (webcast replay / slides), only the Benchmarking Database Basic was released, which includes rankings at the total score and dimension levels (Economic, Environmental, Social). The Benchmarking Database Premium (available to participating companies at EUR 990 for one year), which drills down to the criteria level, allows regional filtering, provides ranking of all industry peers, and includes a four year box plot of a company's score against the industry, will be made available later this year [Note: it appears from the CSA portal that the Premium option is currently available to be purchased, but I cannot confirm the availability of the criteria level data]. Companies that participated in the CSA can view the Basic level data by logging into the CSA portal. RobecoSAM provides a nice two-page factsheet with example Premium output for more details (see picture below).
RobecoSAM's stated goal with this partnership is to widen the investor net for ESG ratings and showcase companies that they believe provide superior stakeholder value. I believe this is a fairly big moment for sustainability investing for three reasons:
- Rating Credibility - RobecoSAM's DJSI is consistently named at or near the top in terms of credibility (see the 2013 GlobalScan/SustainAbility Ratings Survey).
- Investment Focus - As a firm specializing in sustainability investment, the CSA is geared specifically towards stakeholder value.
- Easy to Digest Format - This is the show stopper in my opinion. The simplicity of a percentile rank at the criteria level presents analysts with just enough information to quickly identify potential weakness for further attention. Traditionally, ESG ratings were either a data dump or a rather ambiguous high, medium, low rating without peer comparison. MSCI's research is the closest I feel to RobecoSAM's, but their topical coverage is more limited and only based on publicly available information.
For those not familiar with the CSA, it is a hefty questionnaire covering topics that RobecoSAM has determined material to long-term stakeholder value. While there are 60 industry-specific CSAs (based on the GICS taxonomy), they all contain three general dimensions (Economic, Environmental, Social - RobecoSAM's terms for ESG). Within each dimension is the list of industry-applicable criteria weighted based on significance. For example, Corporate Governance, Materiality, and Innovation Management are Economic criteria and Human Capital Development and Labor Practice Indicators and Human Rights are Social criteria. More details including the methodology, weights and a sample questionnaire ca be found on RobecoSAM's CSA Resource Center.
non-PARTICIPATING companies are included in rankings
If you are a medium to large-cap company and not participating in the CSA please take note! Each year RobecoSAM includes around 1,900 companies in its assessment. In 2016 867 companies participated (i.e. submitted the questionnaire). This means over 1,000 companies were independently assessed by RobecoSAM with their ranking now being presented to all Bloomberg subscribers. A good portion of these companies likely reside in North America, which had the lowest regional participation rate at less than 20%. Given that the amount of information as well as time spent by RobecoSAM's analysts on non-participating organizations is limited, their rankings will more than likely be uniformly below those participating. As company participation will not be declared in the rankings, analysts will be led to believe that those companies are performing near the bottom of the industry.
How to determine The Assessment Status of your company
First Option: All non-participating (and participating) companies received a few emails over the past week from RobecoSAM outlining the roll-out of the Bloomberg data. Login to your company's account using the CSA portal. Check the Reports and Benchmarking tabs at the top. A Benchmarking Scorecard, Industry Overview, and the new percentile rankings would be available if assessed.
Second Option: In the event the email RobecoSAM has on file is not the appropriate person, you can attempt to register your company at the CSA portal. I believe the registration form will indicate who owns the administrator account if an account is already setup. If unable to find the administrator account login information, you can always email RobecoSAM at firstname.lastname@example.org or call their Helpline (+41 44 653 10 30). Once you gain access, check the Reports and Benchmarking tabs as per above.
my recommendations for non-participants
- At a minimum, determine if your company is invited to participate and ranked. RobecoSAM invites over 3,400 publicly traded companies to participate. Check if yours is one of them - list of year 2016 invited companies.
- If ranked, provide your IR team a head-ups that this information is now available on Bloomberg and the reasoning for low rankings (i.e. non-participation).
- Evaluate the potential benefits to the effort and cost of completing the CSA.
A few benefits to consider:
- Free Materiality Assessment - RobecoSAM has expended considerable time and effort to complete the materiality assessments for each industry. Given the typical $50k+ cost to complete a company-specific materiality assessment, this is a cheap and quick way to keep your program aligned with stakeholder expectations.
- Free Benchmarking - The complimentary Company Benchmarking Scorecard does provide valuable insight into your strengths and weakness as well as show you how your organization compares to its peers.
- Investor Relations - While the ESG investing market is still small, it continues to grow at a rapid pace. Additionally, higher CSA percentile rankings may reduce the level of inquiry directed at your Investor Relations team (often then redirected to the sustainability team).
- Reputation - Marketing benefit for being labeled a sustainability leader by a reputable outside organization.
- Reporting Alignment - Many of the raters are working together to align questions to reduce reporting burden, meaning that by reporting to the CSA you also have completed the effort for other disclosures. For example, the Climate Strategy criteria utilizes a subset of the CDP Climate Change questions.
Level of effort to complete the CSA:
- After working with the CSA for the past five years, I place the annual total level of effort (including support from various departments within the organization) at around 250 hours for new participants and 150 hours for ongoing participants. The level of effort varies significantly between the various criteria depending on the type of information and distance from your function group, meaning the CSA can be partially completed at lower levels of effort if desired.
- Hiring a consultant to complete the effort ultimately both reduces and increases the effort needed given their experience with the CSA, but reduced familiarity and reach into your organization. Their cost will depend on their rate structure, your past participation level, and any follow-on services (i.e. gap analysis and recommendations). Expect to budget anywhere between $20k for independents to upwards of $40k+ for more established firms.
- When staff time is available, I recommend keeping the effort in-house as the level of institutional knowledge gained and number of internal relationships built by completing this exercise can pay-off in the success of future initiatives.
NEW DJSI CRITERIA RECAP
Following the Bloomberg discussion, RobecoSAM closed the webcast with additional insight into the assessment of the three new criteria included in the 2016 CSA. More background on each of these is covered in my earlier post.
- Scoring was neutral with regards to issues, but needed to be a value driver (i.e. innovation, people) and not a value in of itself (i.e. financial results, market share).
- For each of the three material issues listed, organizations needed to explain how the issue was relevant to the business (not just to society), how the issue was being measured, and provide evidence of a direct link to executive compensation (i.e. bonus criteria). Relying on financial returns that would benefit from the issue for the pay link was not accepted.
- Almost 80% of participating organizations were able to make the business case, but only 35% could show a link to executive compensation.
- For reporting of materiality, RobecoSAM expects a clear description of the process, evidence of external stakeholder involvement, prioritization of issues (i.e. materiality matrix), and reporting on targets and progress.
Impact Valuation and Measurement
- Industries were selected for this criterion based on higher level of activity in the topic. RobecoSAM plans to roll this criteria out to all industries over the next few years.
Business Programs for Social Need
- Over half of the 232 participating companies had moved philanthropy programs into business added values programs as RobecoSAM put it. Slightly less than half were measuring the social benefit of these programs though.
- Acceptable examples included talent development of the local community for the express purpose of hiring, affordable housing for home building / materials industry, and micro-distribution of products.
- Unaccepted responses included traditional philanthropy programs, corporate reputation or social license to operate, and operational efficiency.
- Impact Valuation proved to be very challenging as less than 20% of companies had developed programs, with another 10% having pilot programs.
- Examples of impact valuation included social/ environmental profit loss statements, True Value, Natural or Social Capital Protocol and internal prices on carbon. I would wager that a large majority of the 20% of companies with developed programs reported an internal price on carbon compared to the other three examples.
- Unaccepted responses included footprinting, revenues from sustainable product lines or service offers and classical Environmental Social Impact Assessments
Labor Practice indicators & human rights
- Nearly 70% of companies had a human rights policy in place and 55% had a due diligence processes in place.
- Responses expected for commitment include explicit commitments in code of conduct or other policy documents, in line with internationally accepted frameworks and supporting evidence of company-wide commitment.
- Unaccepted responses included brief statements recognizing human rights, commitment to UN Global Compact, UN Global Compact letters, only participation in industry-specific initiatives.
- The expectation here was for proactive (i.e. identifying potential issues and mitigating) rather than reactive systems (i.e. whistle-blower, training).
- The big picture expectation was given as a series of three questions:
- Have you looked into your operations and supply chain for human rights risks (within the last three years)?
- Have you followed up on identified potential issues?
- What did you do (e.g. mitigation plan) if you found human rights issues?