Transparency in CSR Rankings
I have started to perceive an inherent hypocrisy in CSR rankings surrounding the question of transparency. Â Itâs been bugging me, so I thought Iâd write a blog post on the subject and see if it provokes any reaction from my readers.
Hereâs the conflict as I see it. Â The very groups demanding transparency from the companies they are evaluating fall victim to the belief that they must guard the details of their methodologies to preserve their intellectual property. Â On one hand, they demand disclosure, claiming that transparency is fundamental to strong CSR, but on the other, they are extremely selective about how much information they disclose about their methodologies. Â In fact, even CSR rankings groups that publish their methodologies rarely offer up sufficient information to truly understand what differentiates their products from those of their competitors. Â Look back on my post about methodologies and you will see what I mean, or try looking directly at methodologies published by groups like CRO, Ethisphere, DJSI, and CRD Analytics, and see what questions remain unanswered for you.
The reasons for this phenomenon are obvious. Â The competitive landscape for ESG ratings is composed primarily of for-profit companies and the crowded playing field has undergone significant consolidation over the past few years. Â These factors have contributed towards pressure on margins that make it difficult for ESG ratings groups to turn a profit. Â In such a competitive environment, CSR rankings group hold precious anything that differentiate them from their peers, making intellectual property the most precious of commodities. Â At the same time, these same firms depend on transparency since without disclosure of voluntary information, there would be no basis for their comparisons.
All this makes sense in isolation, but how does it square with the shifts we see among the companies they are evaluating? Â In fact, it appears that major companies often perceive a benefit in disclosing more than their competitors. Â To do so indicates a confidence and a fearlessness that only a true industry leader could have. Â After all, the legal departments of these same corporations might contend that disclosure of any information beyond what is required by law exposes the company to possible lawsuits and other legal or regulatory action. Â Yet, clearly the companies faring well in CSR rankings that reward transparency see an advantage to placing disclosure above such fears.
Yet at the same time that companies like Nike, Procter & Gamble, and Intel place CSR disclosure front and center, one could argue that they are able to do so because sharing ESG data does not compromise their core intellectual property. Â At the same time, Nike wouldnât necessarily tell you how it makes its shoes so comfortable--- to do so would make its brand vulnerable to imitation from cheaper competitors. Â Given this logic, can we rightly expect ESG ratings groups to put THEIR core intellectual property on the table for all to see?
You could argue this point in a number of ways, but I would propose the following CSR rankings have little meaning without FULL transparency. Â After all, can we trust that a group too unstable to share how it evaluates a company is weighing ESG factors in a manner consistent with our goals or values?