Transcript | Understanding the ESG ratings, rankings and metrics landscape

Welcome to the inaugural edition of Protiviti’s Board Perspectives podcast series, in which we delve into numerous challenges and areas of interest for boards of directors.

In this episode, our focus is on environmental, social and governance (ESG) – specifically, how organisations are judged! One of the most challenging aspects of ESG for board members is understanding what’s become a complicated landscape of third-party organisations that rate and/or rank a company’s various ESG practices, as well as trying to learn, at least at a high level, about the many metrics and measurements that gauge ESG maturity.

Helping to provide some clarity to this complicated landscape are Protiviti’s Bob Hirth and Melanie Larkins. Bob is a Senior Managing Director with Protiviti and also serves as Co-Vice Chair of the Sustainability Accounting Standards Board, or SASB. Melanie is an Associate Director with the Business Performance Improvement solution at Protiviti and is part of the firm’s ESG group leading ESG services across Protiviti’s solutions. Her focus includes building the firm’s ESG center of excellence and serving as its PMO.

Kevin Donahue:

One of the most challenging aspects of ESG for board members is understanding what’s become a complicated landscape of third-party organisations that rate and/or rank a company’s various ESG practices, as well as trying to learn, at least at a high level, about the many metrics and measurements that gauge ESG maturity. This is Kevin Donahue, a senior director with Protiviti, welcoming you to the inaugural edition of our Board Perspectives podcast series, in which we’ll delve into numerous challenges and areas of interest for boards of directors. Joining me to help decipher the current ESG rating, rankings and metrics landscape are Protiviti’s Bob Hirth and Melanie Larkins.

Bob is a senior managing director for Protiviti who also serves as the co–vice chair of the Sustainability Accounting Standards Board, or SASB. Melanie is an associate director with our Business Performance Improvement solution and is part of our ESG group, leading ESG services across Protiviti’s solutions. Her focus includes building the firm’s ESG Center of Excellence and serving as its PMO.

Melanie, thanks for joining me today.


Melanie Larkins:

Thanks. Glad to be here.


Kevin Donahue:

And Bob, as always, great to speak with you.


Bob Hirth:

Thank you for having me.


Kevin Donahue:

Bob, let’s start off our ESG discussion today with you. I first wanted to ask about the ESG metrics and scores that are out there in the market right now. There are ESG rates and rankers. What are these, and how do they work, exactly?


Bob Hirth:

Kevin, let’s try to put a little order and common sense to this, especially for board members that hear about all these things. There’s really been an explosion of what I’ll call evaluators. Those are both the raters and rankers on ESG factors. In fact, some people say there’s over 600 of these, and there’ve been even various mergers of these different raters and rankers.

But I look at it a little bit as follows — and I don’t know if this is really a difference without a distinction or not, but think about the word as getting a ranking. These tend to be much more oriented toward the brand reputation of a company. A good example would be Fortune’s Best Places to Work, or what you see in local business journals about the “top 10” or the “best 25.” We think about the raters, and, again, using that word, it’s where you get a score or a grade. And I’ll give you some examples here shortly, but they tend to be a little bit more investor-focused, though they do focus on other stakeholders. They also tend to be more quantitative — they use a lot of data evaluation.

There’s what we call active raters. Those are people who are actually requesting information, having you fill out a questionnaire or be on a call. And there’s what we call the passive raters, those that are simply what many people refer to as the data scrapers. They’re going out into the internet and using big data and looking at your 10K and your proxy and other information. Obviously, there’re a number of companies that do this, but just a couple of examples that board members might’ve heard of or would want to look into are Sustainalytics or Bloomberg, ISS, of course, something called the Climate Disclosure Project. Obviously, MSCI, Standard & Poor’s, and many of the large institutional investors like Vanguard and Fidelity have their own type of investment scoring system, and even Yahoo Finance.

The point to understand is, there’re many of these out there, they’re used by all forms of stakeholders, including individual investors as well as the institutions, and they’re using those to form an opinion about the organisation in some way and make a decision about the company. And to blur it a bit more, many of these, we can argue what’s a ranker and what’s a rater, and many times you might see these organisations as both.


Kevin Donahue:

Thanks, Bob. I just want to be clear: You mentioned there are as many as 600 or more of these rankers and raters out there right now. You had mentioned some more well-known names of these different rankers and raters. Is there a source, or where an organisation or even a board can look into in terms of the one or ones they want to choose, or is it best to check with their shareholders and stakeholders about what they’re using?


Bob Hirth:

I think it’s a little bit of both. Certainly, as an individual board member, you’d go out on the internet and find all forms of scores. In fact, you could look up your company today on Yahoo Finance and you’ll get a number over on that website. I’d encourage board members to start with their investor-relations functions and lead to look at the work they’ve already done. And certainly, one thing we can talk about later today is how you need to prioritise these things, but let me follow on to another question you might have, which is, how do these things work, and what do they do?

Basically, most of these raters and rankers, they have some type of score: It’s 1 to 100, or it’s some type of letter grade, like you get in school. Some of these raters and rankers actually provide you with the data that they used to get their score, and they explain their methodology, and it’s quite clear. Others are a little bit of a mystery, or what we call a black box.

Let me give you two examples for board members to think about. One obviously well-known organisation would be Bloomberg. They have something called the ESG Disclosure Score: A company gets a score from 0 to 100, and to give you some examples of the scale here, they’re covering 11,000 or more companies. They have 120 indicators with 800 metrics, and because they’re more of a passive rater, they say they’re measuring transparency and not performance, so they’re rating the company on how much it’s disclosing, so you might call it a data scraper. They talk about that they use the 10K and annual reports, the ESG reports, press releases, etc.

But on the other hand, there’s an organisation called the Climate Disclosure Project, which is abbreviated CDP. You get a rating, you get a public school letter grade from A to F, and that organisation has a very lengthy questionnaire that covers 14 areas, things like governance, targets, ad performance, emissions, energy and so on, and there are almost 10,000 companies that participate in that questionnaire filling-out process, and then, once you’re done and you hit the Enter button, it’s publicly available, including, CDP looks at it and comes up with that letter grade of A through F.


Kevin Donahue:

That’s just incredible information, and a lot to take in. Melanie, pivoting from these ranking and rating organisations, there also are ESG certification programmes in the market. Tell us about these.


Melanie Larkins:

Like the ratings and rankers, there are a number of different certifications that organisations can receive or secure, and they’re at three levels. I’ll go into the first two levels, but there’s the organisational-level certification that people can get. That could be something like getting ISO 14001 certification, which is all about implementing environmental management systems, or ISO 26000, which is all about implementing sustainable development within an organisation.

You could bring things down to a project level. Within the building industry, for example, the U.S. Green Building Council, the USGBC, they have a certification that’s very well-known, which is Leadership in Energy and Environmental Design, or LEED, and buildings can secure different levels of that certification depending on what they have in place as far as products and processes and design and different things. Then, you can also look at WELL and Fitwel. These are healthy buildings, going a little bit deeper into the green-building industry, and there are just a number. If you go one level down, then we look at the product side, and there are a number of different certifications that you can get with that as well: If you’re looking at wood and paper products, there’s the Forest Stewardship Council; you’ve got the Sustainable Forestry Initiative.

You’ve got people looking at design specifically — there’s something called Cradle to Cradle Certification, and this is looking at product circularity. A lot of times, we’re designing things, assuming that we’re going to throw them away at the end of the life of that product, and with Cradle to Cradle and the idea of circularity, we’re thinking more about, how do we design with the end in mind? What happens with this product once we’re done using it? Is it being designed and manufactured with materials that are able to be recycled or reused and to stay at a high value? That’s the idea behind Cradle to Cradle. You’ve got a number of other product certifications — the International Living Future Institute has the Living Product Challenge, the Living Building Challenge.

There are so many certifications out there at the organisational level, at the product level. I won’t even get into the individual level because it’s almost overwhelming, and one of the things that can help boards and help organisations is to have someone like Protiviti that can come in, do a materiality assessment, have conversations, interviews, discussions, to see which one of these certifications is worth the organisation’s time. Not everything is going to work for every type of organisation, not everything will work for every kind of product, and it’s important in this landscape of so many certifications, of so many avenues to demonstrate how sustainable a product can be. It behooves an organisation to have some guidance with that.

What I’ve mentioned is just the tip of the iceberg, and just the environmental side. When we’re talking about ESG, we’re also talking about the social side and the governance side. If we’re looking at social, there’re a number of DE&I — diversity, equity and inclusion — certifications that you can get. There’s one called EDGE that’s all about gender equity. There’re different certifications that you have that can demonstrate how well you’re implementing diversity and inclusion programmes.

On the governance side, there’re ethical ratings, ethical certifications that are very important for organisations. You can look at things like top companies, and there’re certain standards and certifications that go with the best place to work or the most ethical organisations, similar to a lot of the rankers that you’ll see out there.

But there are particular frameworks within these certifications that can be very helpful to an organisation that helps a board and helps a business be able to promote itself and have some sort of foundation behind the claims that it will make about being sustainable, or being ethical, or being socially progressive, or being even inclusive, that these certifications can help to give that foundation some sort of grit and some sort of credence put in place.


Kevin Donahue:

From a board member’s perspective, that’s an incredible amount of information out in the market to digest and decide on. Melanie, I wanted to ask you — and, Bob, you can chime in on this question as well — do boards and companies today care about these ratings and certifications? Do they see these things as mattering?


Melanie Larkins:

If you had asked me that question 10 years ago, I would’ve been a little leaning toward the “no” or “potentially, yes, but not very much,” and it speaks volumes about the way that our world is going that I’ve shifted in the last decade from a “basically, no” to “absolutely.” Increasingly, you can see in the popularity of ESG as a topic, of carbon emissions as a topic, of social equity, social justice, of inclusion, of ethics being top of mind for so many boardroom conversations that was just not happening 10 years ago, even five years ago.

In the last five years, these issues have become — you can’t ignore them anymore. You can’t have a successful business going toward the future if you’re not addressing ESG, if you’re not addressing these ratings and rankers, if you’re not addressing these certifications, because not only are organisations being looked to and assumed, it’s also not even just a nice-to-do, it’s also a must-do at this point.

To get business with certain types of clients, it’s a must-do, and especially, if you’re a public-facing organisation, more and more consumers have access to so much information, and they want more. They want to have product transparency about what they’re ingesting and what they’re wearing and the products that they’re using, what we’re sleeping on, all those issues that consumers really care about now and maybe always cared about, but they didn’t have access to the information.

And now that we do as consumers, we want to know. And if organisations are not disclosing certain information, if they’re not securing certain certifications that affirm that they are doing what they say they’re going to do, then it’s becoming more difficult to keep consumers with your brand and to have that brand loyalty and that brand visibility and that reputation that we want to have in the marketplace to be seen as a company that’s doing the right thing and is also successful from a financial perspective.


Bob Hirth:

Kevin, let me add to that question — does it matter? I’ll just say, yes! This information is being used by investors and stakeholders to make decisions about the company to buy the stock or to sell the stock for what it’s worth, and study after study tends to show more that higher scores around these raters and rankers generally correlates to a higher stock performance — or we described it as a higher valuation.

A couple of other examples: I was looking at an ESG report of a large company: Page one summarises their ESG ratings profile. In fact, they even have a quote right in the very middle of the page coming from S&P Global congratulating the company on the improvement in its score over the year, and there’s a table that shows the different raters and rankers and what their score was last year and how much better it got.

There’s even a private company — a pretty large PE-owned firm has an ESG report, and on about page five of the report, they show the badge of one of the sustainability raters and their gold-level accomplishment of that. It’s important. And even in press releases, again, you see things like “Company receives higher ratings for climate actions initiatives,” so you see all those things. Again, a couple points on this for board members, it’s important that the organisation owns its data, can tell its story and is reporting the complete set of information that these raters and rankers want. Obviously — but we’ll say it — it also has to be accurate, so you need to think about what are the process and controls around all of that data reporting.

Certainly, with my comment about 600 raters and rankers, you’ve absolutely got to prioritise. They are not all important and not all relevant to you, and where you have issues with the rating and ranking, engage in dialog, but also make the data easy to use.

One other thing on scoring: Board members get pretty excited when they see their score, and they’re happy when their score’s higher than someone else’s, and they get quite concerned when it’s a bit lower, but you have to take more than that face value and get behind those numbers to understand more about them as well as who is it that’s giving that rating.


Kevin Donahue:

We’ve touched on some of this already, but I did want to focus on it specifically, especially as we consider from a board member’s perspective. What are some immediate actions companies should be taking or start taking not only to build up their ESG efforts but also to improve their ratings from these organisations or the ones they choose to get a rating or ranking or participate in that process from? What are a few things they could do today? Melanie?


Melanie Larkins:

The top thing that people can do, pretty much no matter where you are in your journey — but especially if your organisation is at the low to mid level of maturity — is to get help, to have someone that can guide you through the process of understanding what to target and how to target with respect to ratings, rankings and certifications.

Because there’re a number of them out there, you don’t want to waste your time, and you don’t want to waste money and you don’t want to waste resources going after something that doesn’t actually benefit the organisation at the end of the day. You want to make sure that you have the expertise that’s walking along with you that can help you navigate and understand the landscape that you’re in, and even I would ponder or posit that even if you’re farther along the maturity journey, sometimes it’s good to have an outside party come in to assess where you are, and they might be able to offer you some new avenues that you have not considered. It’s that idea of looking at the same thing for years and years, and there could be something right in front of your face that you can’t see because you’ve been looking at the same thing the same way for so long. That’s top for me.

Also, understanding your business and the future of the business and understanding that, yes, it’s a very broad topic, but there’re certain aspects of the E, of the S, and the G of the ESG that can benefit basically any business, no matter the size. Understanding how your business fits into that larger idea of ESG and how ESG can actually benefit the business is important, and understanding the investment opportunities that are possible as a result of ESG. Again, sustainability, ESG, these topics were a nice thing to have before, but when we’re looking at risk, when we’re looking at the viability of an investment, ESG time and time again, and increasingly so, is showing that addressing these issues can make an investment stronger and more stable over time.

If you look at a lot of the stocks, a lot of the organisations, during the pandemic, for example, they were highly volatile, and if you look at the companies and the funds that were focusing on ESG, they were much more stable over that same period of time. That’s something important for boards to consider: If they want an organisation to last for the future years, these are crucial and have to be addressed. If you’re on a board in an organisation that’s not considering these topics, it’s a must-do, and if you already are, then look at ways that you might be able to develop and expand what you’re already doing.


Bob Hirth:

Kevin, I agree absolutely with the prioritisation point, but the other thing is, get behind the score. You see a score, and you just react to it. Get behind the score, and a lot of times, that’s engaging with that rater or ranker, having a call, making sure they understand the information you provided, or if they have some questions or if something’s incomplete. Another thing is to ask the question “Can we actually improve?” Some business models and some industries, just by their structure, you’re not going to get any better on something. And then, of course, what else can you disclose?

A good example of that is, we’re working with a company that got a low score on climate risk. They’re trying to figure out why, and one of the things we looked at is, they didn’t disclose in a very obvious way this Task Force for Climate Financial Disclosure, or TCFD, framework. One idea would be, let’s get that put in the report in a very clear way, and we know that the rater has a set of questions around that. They weren’t able to answer the question, so the company gave them a low score. Again, it’s understanding what you disclose and what you have, and then, what the rater is trying to fill in the blanks on in terms of their model and methodology.


Kevin Donahue:

Thank you both. Bob, let me ask you to touch briefly on the IPO world, for companies planning to go public. Are companies being rated before they’re taken public? If they’re not, should they be?


Bob Hirth:

Are companies now thinking about ESG before they go public? I’ll give you the yes with an exclamation point again. In fact, so much of what we’ve done here at Protiviti is, we’ve added an ESG preparation area or module to something we call our public company transformation work, which is where we really work with a company ahead of time to prepare them for being a public company: the skills they need, the systems, the people and all that. We’ve added that in there, and now, more and more companies are actually disclosing ESG information in their Form S-1 as they go public. The Allbirds shoe company is a great example of that. And then, again, more and more large private companies and PE-owned companies with a possible IPO strategy, they’re issuing ESG reports now in contemplation of that.

In fact, the largest IPO in India, if we want to get outside the U.S. for a second — the regulator there is trying to figure out, should this company get some sort of ESG score before they go public so that the investors know ahead of time what this might look like? Then, another example back in the U.S., Robinhood, the stock trading platform that went public this past year, they issued their first ESG report within 60 days of their IPO. And then in terms of the business, MSCI, one of those raters, they have what they call a provisional ESG Rating. To quote from their brochure, they say, “This is intended to help privately held companies, their owners, bankers and other stakeholders understand their ESG profile in preparation for an upcoming IPO.” So, this is something that’s getting put up front before companies go public now.


Kevin Donahue:

Melanie, let me ask you a follow-up to that, but it could be a separate question: It’s about smaller companies, and I think about those because many pre-IPO companies would be considered smaller ones. Do you think they’re a bit disadvantaged in this process because they may have fewer resources to devote to ESG rankings and certifications? And how can they address some of those shortcomings?


Melanie Larkins:

The short answer is yes, because, in some cases, especially if you’re looking at government or certain certifications or people, that might require LEED certification or something like that, there’re certain places and instances where there are solid requirements. If you haven’t discussed with CDP, for example, you would not be considered at all for a certain project or a certain client work. If you don’t have a product that’s certified Cradle to Cradle, it wouldn’t be considered for certain things, or if you can’t show that it’s free of certain materials, you can’t get into certain parts of business. The short answer is yes; however, what I’ve been seeing lately is that organisations are recognising that. We recognise in these larger companies that smaller organisations might not have the people power or the financial power to be able to secure some of the certifications, but they’re still trying to do the right thing.

Some companies might develop a framework that’s specifically tailored to small businesses, where it might be based on a framework like the one that you see with CDP, or GRI or even Science Based Targets, but not requiring those smaller businesses to actually get that certification. But they can show that they have those same systems in place without having the large budget or the resource time to go after that particular certification. They can still demonstrate that they’re doing what they need to do to be more sustainable, to be more inclusive, to be more ethical and have good governance.

That’s one of the things that people can do: Look at those major frameworks, and start to set a business up in that direction where you’re starting to track carbon emissions, where you’re asking your suppliers about their human rights policies or about discrimination policies or ethics policies and how they’re training their employees and communicating that where they might not be able to go after those certifications because of budget constraints but still can demonstrate, “We really care about these issues. We’re doing the right thing. We have our systems in place. We have our processes and controls in place. This is what we can demonstrate.”

And more and more, the larger organisations are starting to recognise that and give that more standing in the marketplace, more equitable standing with the larger organisations. For example, some companies might have a Science Based Target, or SBTI, or SBT initiative, where they require a certain number of their suppliers to have Science Based Targets. But having a certain percentage like 55% or 60% or 65% means that you have some flexibility there. Sometimes it’s diverse suppliers, small businesses, other business types that you want to involve in your ecosystem, that you want to involve in your purchasing decisions, but still meet your ESG sustainability goals.


Kevin Donahue:

Thank you. I should mention that our listeners here can visit to find more information and Protiviti’s perspectives on these many ESG-related issues.

I wanted to cover one last question with each of you, so in closing, Bob, I’ll have you respond first. How should board members work with their management teams to prioritise ESG-related activities? What are some of the factors to consider?


Bob Hirth:

One thing, obviously, is to make sure the board meeting schedule has something on ESG where investor relations and others make that presentation, but also, even though we just focused on raters and rankers, please, everybody remember that the raters and rankers around ESG, they’re one piece of the puzzle. There are a lot of other things that you need to look at. I’d like to go back to fundamentals. I have a saying, “Great ESG scores do not make up for poor financial performance.” So, you’ve got to stay on top of both of these pieces. We get all excited about the sustainability reporting, but we can’t forget about what I’ll say is the foundational step-one piece, which is good financial performance.

But to that point, boards, and members of management, they should be asking, “Who rates and ranks us, and which ones of those really matter?” “What are our scores, and why do we have that score?” “How do we compare to our peers?? “What, if anything, can we do to change?” Sometimes you can’t change that score because of your business model or your industry. And finally, “Are we reporting on the things that really matter,” that, as we talked about, are the material topics that really, in a sense, drive the score or a big part of the score? Those are a few of my suggestions.


Kevin Donahue:

Melanie, what are your thoughts as we close things out here?


Melanie Larkins:

Well, Bob wrapped it up quite nicely. I like what he had to say about all of that. One of the other things that can be sometimes helpful with ESG in general, but definitely with the certifications, the rankings, all of that, is sometimes to tie metrics, KPIs, to that achievement. Sometimes if that’s focused on compensation or something like that at the executive level, at the management level, that, in my experience, has helped to drive those changes that are required with ESG programmes throughout the entire organisation. What I’ve found is sometimes, when there’re board directives, things have a hard time reaching the other levels of the organisation. And when you start to integrate KPIs, things that are tied to performance as much as the financial performance is tied to those numbers as well, you start to see those programmes move forward and anchor into the organisation. That’s a big one for me.

Communication is key — communicating within the board your own priorities, because sometimes you’ll see that the board’s priorities are not aligning with what’s happening in the organisation in present time — making sure that those same priorities are communicated to the leadership and on down the company. Communication, I’ve learned from implementing these kinds of programmes, is top to having these things be successful, going along with financial performance so you’re not shooting yourself in the foot by, as Bob said, focusing on a sustainability or ESG programme, and your financial performance falls by the wayside.

You want to make sure that communication is clear, that those priorities are clear, and that they align with the future vision for the company, whether that’s two years out, five years out, 10 years out. People are having a tougher and tougher time planning the 15 or 20 years out because of the last couple of years, but as you’re forecasting, it’s important to make sure that the board is aligned and that that trickles down.


Kevin Donahue:

Thank you for joining us today. I hope the many insights that Melanie and Bob shared proved helpful to your boards and organisations. To learn more, visit, and I encourage you to subscribe to our Board Perspectives podcast series and to review us wherever you get your podcast content.