Understanding the Standard Ethics Rating

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Sustainability ratings are Opinions on how well a company manages to balance ESG (environmental, social and governance) issues. It measures the ability to benefit from opportunities and manage risks in the mid-to-long-term.
Ratings are provided by Sustainability and ESG rating agencies that specialize in assessing the three areas (Environment, Social and Governance).

Each agency applies its own methodology to measure ESG issues, using a specific rating scale to publish its ESG score or ESG rating opinions. Standard Ethics Ratings (SER) are expressed as letter grades that range from ‘EEE’ to ‘F’ and communicate the Agency’s opinion on the relative level of reputational and operational risk.

Awareness for rising environmental and social needs and transparent governance models make Sustainability ratings a powerful tool for companies to build a competitive advantage and show investors and stakeholders their ESG commitments.

According to studies, sustainable companies are better equipped at identifying new products, and more attractive for employees - retaining important know-how, fostering innovation, strengthening their reputation and reducing the potential impact of legislation and standards.

Standards for Listed Companies

In principle, Standard Ethics would hope that companies formally refer to the Universal Declaration of Human Rights approved by the United Nations on 10 December 1948 within their Articles of Association.

Standard Ethics would also hope that companies have aligned their organisational structures with the UN, OECD and EU principles on Sustainability (with particular reference to corporate governance).

The basic conditions that listed companies are expected to meet are as follows: to hold a competitive position and not a monopolistic one and not be linked to cartels; to make sure that their shares are listed and can be bought without restrictions and that they enjoy substantive rights (voting trusts, for instance, are not acceptable); to have widespread ownership of the capital and no conflicts of interest; to ensure that all Board members are independent of capital ownership and abide by a Code of Conduct that ensures transparency; to have procedures that check observance of the latest internationally recognised social and environmental standards (according to the UN, OECD and EU sustainability indications).

Further positive elements are: transparent staff selection (including managers); an independent internal monitoring body (liaising with the Shareholders’ Meeting and working at Board level) to check that the Board works in line with the latest UN, OECD and EU standards and principles on conflicts of interest and Corporate Governance; an independent internal monitoring body (e.g. the Audit Committee) which is accountable to shareholders and monitors that the Board works in line with the latest UN, OECD and EU standards and principles on extraordinary accounting and finance; an internal body which reports and facilitates the company’s adherence to the latest international social and environmental standards and principles; an external relations and communications department which works in line with the latest standards and principles on Sustainability and transparency and applies with due independence the “comply or explain” principle whereby failure to comply with international guidelines on Sustainability has to be duly motivated.