The ratings market is a crowded one, and the organisations that want to come out on top need to set themselves apart
Observers of the rankings phenomenon have a number of hopes for the future which, as you would expect, focus on smoothing out the rough edges.
For instance, consultancy SustainAbility in its recent “Rating the Raters” report made a call for greater simplicity in how the rankings score companies. It is an obvious response to the widespread perception that there is just too much complexity in many of these systems – and the suspicion that the complexity leads to results that are plain wrong.
Rodrigo Amandi, SAM managing director, says one of the priorities for the Dow Jones Sustainability Indices is going to be improving this area. “We will be aiming to make the methodology easier to understand for the general public,” he says. It is not a belief that the current system is wrong in substance, but that it could be better explained.
Substantial shift
Others are looking for more substantial shifts. According to Toby Shillito, director of the CR Index and advisory services at Business in the Community, the CR Index is undergoing a substantial review in response to the widespread experience of its member companies that there are diminishing returns over time to taking part.
“Fifty-one companies have done the index every year since it was first created,” says Shillito. “We are now carrying out a review to look at what should change to make the system fit for the future.” CR Index’s aim is to produce a “slimmer question set”, that focuses on “really distinguishing the high performers from the rest.”
So far, taking part in such benchmarking efforts has been largely restricted to the big boys, but Shillito adds that BITC is piloting an “Index Lite” that will be focused on small to medium sized companies “and takes a maximum of three hours to complete”.
Can you get meaningful results from a process that takes three hours? All the companies that complain of growing index complexity must surely hope so.
For now, the trend still seems to be towards complex systems, and the danger must be that in the quest for the system that will accurately measure performance, you spend so much time on the measurement you actually fail to drive performance.
As the old saying goes, you don’t fatten a pig by weighing it.
As for other trends, Michael Sadowski of SustainAbility believes that there will be more issue-specific ratings. “We have already seen this happening, with carbon and now water becoming the focus of individual rankings. It could be, for instance, that bio-diversity will be one of the next to emerge.”
Sadowski says that there is value in very specific ratings because they can achieve simplicity as they are clear about what they are measuring. “We don’t need any more universal rankings. Indeed, we might hope to see some consolidation amongst these in the coming few years.”
However, there is nothing inevitable about the systems that are the most intellectually robust proving to be the most enduring or financially viable. One commentator says: “Successful rankings will be defined by those which can actually strike a nerve with decision makers and actually motivate action. These may turn out to be precisely the media-owned PR-driven rankings that the CR professionals are most dismissive about.”
The commentator suggests that if the best system is a “private show for SRI investors”, and the worst is a high profile supplement in Newsweek, or Fortune, or any other journal that executives might find themselves reading as they sit in first class on their business flights – well, you can see how that might play out.”
Active education
Sadowski acknowledges this danger, and believes that corporate responsibility professionals within companies have to be more active in educating their top executives to understand which ratings carry real weight, and which should attract more scepticism. It’s a process that can’t begin the day after an executive has become excited about something he or she has already read.
This may create a whole new phenomenon for the future. If consolidation is going to happen, you can expect to see robust rankings seeking the demise of those that they might see as “snake oil salesmen”. This could potentially see some of those ratings developing new media partnerships with the organisations whose inferior efforts they would seek to supplant. It will see those that use some degree of validation of data highlighting their superiority over those that don’t, for instance.
For the time being, such coups remain speculative. But you get the sense talking to those that make the rankings work that they know the stakes are high, and there is everything to play for.