International Rating Agencies and Sustainability

119 Pages Posted: 1 Feb 2005

Date Written: March 2004

Abstract

In the 1990s, the importance of international rating agencies became more pronounced among stakeholders who were interested in screening companies based on specific financial criteria. Now with a focus on sustainability, stakeholders are interested in screening companies on both financial and non-financial criteria. Specialised rating agencies have emerged developing new rating typologies to meet this need, and global stock markets have introduced indices to measure sustainability performance. This paper provides a detailed examination of 17 major international rating agencies and their methodologies. Using an analytical framework underpinned by the audit independence literature, it finds that the majority of rating methodologies currently in use are unacceptable, and highlights the co-operative rating as the superior methodology.

The paper also provides a detailed examination of the nine global sustainability indices and their screening criteria. It finds that Australian organisations are not well represented.

And on the reporting front, the paper examines a number of extended reporting frameworks for sustainability disclosure, and finds that these have had little impact on Australia. With more Australian investors seeking responsible companies to invest in, and new legislation demanding sustainability disclosure, demand for extended reporting is increasing. Add to this the arrival of specialised rating agencies, and Australian companies may soon be forced to change their behaviour about sustainability disclosure.

Keywords: Rating agencies, CSR, sustainability, corporate governance

Suggested Citation

Finch, Nigel, International Rating Agencies and Sustainability (March 2004). Available at SSRN: https://ssrn.com/abstract=658082 or http://dx.doi.org/10.2139/ssrn.658082

Nigel Finch (Contact Author)

Saki Partners ( email )

Australia

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