Harnessing Sustainability Ratings to Move Markets European University at St. Petersburg Dr. Allen L. White 30 September 2013

Peter Bakker President, WBCSD; former CEO, TNT 2 “I am a capitalist…The mistake currently lies in only expecting (and managing) a return on financial capital. Capitalism requires a new operating system and needs to be re-booted so that we expect and manage the return on financial, natural and social capital. Business as usual is not an option for a future- proofed economy in which nine billion people live well with the limits of the planet by mid-century.”

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About GISR  Founders: The Global Initiative for Sustainability Ratings (GISR) is a joint project of Ceres and Tellus Institute — partners that founded the Global Reporting Initiative (GRI)  Vision: Redefine the definition and measurement of company value creation that incorporates all forms of capital: human, intellectual, natural, social, along side financial  Mission: Create a world class corporate sustainability ratings standard as an instrument for embedding sustainability into company practices and financial markets worldwide  Strategy: Steward a multi-stakeholder and global process comprising: investment managers, pension funds, companies, NGOs, accountancies, academics, governments and raters  Launch: June 2011  Role: A standard setter. GISR will not rate companies; its standard will be applied by existing and future ratings organizations 4

20 Years of Sustainability Metrics More voluminous – GISR data base: indicators/500+ issues – SASB: 900+ indicators; 500+ unique – GRI: G4: 29 issues/149 “disclosures”; sector research: 2800 indicators More applications – SRI – Self Assessment – Stock Exchanges – Ratings: Sustainability and Credit …………………. More material? More impactful? 5

Sustainability Ratings: What’s the Problem?  Too many indicators  Too many issues  Too many surveys  Too much volatility  Too little transparency >>>Curbs utility, uptake, integration, and impact Opportunity—grow the supply and credibility of quantity of quality ratings; mainstream sustainability, enhance company practices, move financial markets… 6

Value Proposition for the GISR Standard  Companies  Survey Fatigue  Transparency  Convergence  Investors  Clarity  Relevance  Raters  Credibility  Market Expansion 7

Sustainability Information Value Chain 8

Standards Ecosystem 9 Identify GRI – Core universal and some sectoral indicator for sustainability reporting SASB – sector indicators for US SEC reporting IIRC – A framework that blends financial and sustainability information rooted in “vital capitals:” Financial, human, intellectual, manufactured, natural, social Inform GRI – Disclosure guidelines for stakeholders globally SASB – Disclosures of sector-specific indicators “material” to SEC IIRC – A framework for for guiding companies on communicating how value is created preserved Evaluate GISR – Standard comprising principles, issues and indicators for measuring corporate performance excellence

Selected GISR Partners 10 Companies Investors Metanoia Fund NGOs & Foundations Sponsors

11 Building the Standard: Content and Accreditation Levels

Component 1: Principles 12 Process  Assurability  Continuous Improvement  Impartiality  Inclusiveness  Transparency Content  Balance  Comparability  Comprehensiveness  Sustainability Context  Long-Term Horizon  Materiality  Value Chain Exposure Draft>>>Beta>>>Version 1.0: November 2013

Example 1: A Balancing Act-- Transparency 13  Companies: Essential for performance improvement  Raters: IP is part of the business model  Investors: Essential for informed choice and application Thus, transparency of what, to whom and in what form?

Example 2: A Balancing Act – Comprehensiveness and Sustainability Context 14 X 1 Baseline year Peer comparison Performance Today 2 Company Goal 3 START LINE SUSTAINABILITY CONTEXT - FINISH LINE 4

Credit Ratings: The Next Sustainability Frontier Sustainability ratings rate companies Credit ratings rate debt issues Companies, public and private, float issues >>>>>Credit markets=$10’s trillions/year 15

State of Play – Credit Ratings Number of Outstanding Credit Ratings by Category of Credit Rating NRSROFinancial Institutions Insurance Companies Corporate Issuers Asset-Backed Securities Government Securities Total Ratings AM BestN/R4,8261,91056N/R6,792 DBRS21, ,0379,88915,79851,570 EJR ,136 Fitch54,5864,01014,42758,315217,198348,536 JCR N/R54722 KBRA16,127521, ,278 Moody’s56,4863,95330,43993,913814,087998,878 MorningstarN/R 16,070N/R16,070 S&P60,7007,80045,400108,400948,3001,170,600 Total209,85820,87098,654286,6961,995,5042,611, Source: NRSRO Annual Certifications, 2011

Sustainability: Embedded in Business Risk Profile S&P’s Corporate Ratings Methodology: Business and Financial Risk Matrix Financial Risk Profile Business Risk Profile MinimalModestIntermediateSignificantAggressiveHighly Leveraged Excellent AAA/AA+AAAA-BBB-- Strong AAAA-BBBBBBB- Satisfactory A-BBB+BBBBB+BB-B+ Fair --BBB-BB+BBBB-B Weak -- BBBB-B+B- Vulnerable -- B+BB- or below 17

Ratings 2020: Companies and Credit 18 Ratings 2013 START LINE RATINGS 2020 FINISH LINE Financial Ratings Sustain. Ratings Ratings 2020 Financial Ratings Sustain. Ratings Integrated Ratings

Sustainability Ratings RATINGS TODAYRATINGS 2020 Voluminous surveys burden companies; underinvestment in sustainability by investors. Common survey for core information and accompanying supplements. Ratings harmonization without over-prescriptiveness. Lack of transparency impairs application to performance improvement and investor uptake Users’ Guide to Sustainability Ratings and GISR Principles enhance transparency, utility and value of ratings for financial markets Lack of materiality leads to information overload GISR standard drives convergence toward material issues and indicators Financial markets minimally integrate sustainability information GISR builds ratings credibility and spurs market expansion for high quality ratings

An Invitation 20  Support GISR’s Standard Development Activities  Technical Committee, Expert Advisor Committee, feedback on public exposure and beta versions:  Join the Supporting Stakeholder Program  A growing multi-stakeholder network of supporters stakeholder/ stakeholder/  Contact GISR to Explore Opportunities for Collaboration :

Thank you For more information: 21