What are the CSR and sustainability rankings to watch in 2018? This time last year, I wrote a summary of the new investor rankings and NGO initiatives that were set to launch in 2017. This year, the scene looks even more crowded.
2018 may well be remembered as the year that investors went into overdrive on environmental, social and governance (ESG) issues. At Corporate Citizenship, we’re tracking investor interest and asking how companies can better engage with investors on ESG issues through our Long-Term Value Project.
Last year, some of the world’s largest money managers supported climate-related shareholder proposals for the first time. In 2018, action will continue to ramp up as investors act on the climate risk information reported by companies following the G20’s TCFD recommendations. Vanguard has named climate risk and gender diversity as defining themes of its investment approach for the years ahead, while BlackRock announced that it will double the size of its engagement team over the next three years.
Recent years have also seen a trend of consolidation among some of the world’s biggest index firms and ESG advisors. This includes S&P Dow Jones Indices’ acquisition of Trucost; the merger of Vigeo and Eiris; Morningstar’s purchase of 40% of Sustainalytics; and ISS’s acquisition of Ethix. As can be seen from the examples below, many of these partnerships are now starting to bear fruit.
And it’s not just investors who have been busy – a number of new rankings are on their way from NGOs and academics too. We’re also seeing more by way of investor-NGO collaborations, such as the Aviva-backed World Benchmarking Alliance, which counts Oxfam, ShareAction and WWF among its supporters.
Without further ado, here are some of the initiatives to watch out for in 2018:
- CDP goes TCFD: One of the longest-running corporate benchmarks, CDP’s investor backers now represent $100 trillion of managed assets. This year, CDP is revising its questionnaires to align with the TCFD recommendations – as my colleague Sarah summarises here. While the new questions may not have a major impact on the mark scheme in 2018, expect CDP’s ‘A List’ to be reserved in future years for companies who can demonstrate an in-depth understanding of the impact of future warming scenarios on their business models.
- Unfriend Coal: One industry that knows all about climate risk is insurance. Keeping tabs is the Unfriend Coal initiative, whose new scorecard ranks 25 global insurers. So far, 15 have taken or are planning action on coal – expect more to follow.
- Workforce Disclosure Initiative: This new initiative, backed by investors including Schroders, Legal & General, HSBC and AXA, aims to do for labour rights what CDP did for climate change. Last year, the group sent a questionnaire to 75 global companies, with questions on everything from injury rates, to the proportion of staff on permanent and fixed contracts, to the number earning minimum wage. The pilot results will be published in spring 2018.
- Human rights, round two: The Corporate Human Rights Benchmark (CHRB) and Know the Chain initiatives are due to launch revised methodologies and updated rankings in 2018. While both initiatives remain fairly small, benchmarking about 100 companies each, they have big plans. Expect growth into other industries, and continued backing from investors looking to put the “S” into “ESG”.
- E&S QualityScore: Proxy advisory firm ISS’s QualityScore (formerly QuickScore) is used by investors to identify governance risks within their portfolios. ISS is now expanding the methodology to include environmental and social risks. The new assessment will initially cover companies in industries including consumer durables, energy and transport, with more to follow.
- Responsible Mining Index: Delayed slightly after featuring on my 2017 rankings watch, this new ranking of mining companies’ performance in economic development and ESG issues is now set for release in early 2018.
- Modern Slavery benchmarking? Over 100,000 organisations worldwide have now published a statement in line with the UK Modern Slavery Act, according to the TISC Report tracker. Incoming legislation in France and the Netherlands, as well as planned initiatives in Switzerland, Germany and Australia, will place further requirements on businesses. The time is ripe for an enterprising organisation to begin ranking companies on their compliance – similar to US rankings by Development International, based on the Dodd-Frank conflict minerals disclosure rule and California Transparency in Supply Chains Act. As Dodd-Frank faces repeal, could Development International turn its eyes overseas?
- Future-Fit 2.0: Not a traditional benchmark, Future-Fit is an open-source methodology that aims to help companies measure the gap between current practice and “future-fitness”. In November, Future-Fit published ‘Release 2’ of its methodology, in partnership with The Body Shop, Novo Nordisk and Grant Thornton. Will other companies follow in 2018?
- World Benchmarking Alliance: A surprise new entrant in 2017, the WBA aims to be the definitive benchmark on how companies are contributing to the Sustainable Development Goals (SDGs). The initiative is working with existing benchmarks such as CDP, CHRB and the Access to Nutrition Index, while developing new ones on topics such as gender equality and marine ecosystems by 2019. Watch this space.
- SDG indices go mainstream? The WBA isn’t the only group benchmarking companies against the SDGs. Investment index provider MSCI was quick to jump on board in 2016, launching a ‘sustainable impact’ index and making its full dataset available to investors. Now, S&P Dow Jones Indices may also be following suit, after Trucost published a best-practice approach for investors looking to align their ESG strategies with the SDGs. Such alignment could become the new standard for impact investment.
The above list is not intended to be definitive, but covers a number of initiatives that should be on companies’ radars this year.
Have I missed any? Get in touch at charlie.ashford@corporate-citizenship.com.
