How do you evaluate sustainability?

It is no secret that the concept of sustainability has long since left its ecological niche and is making a successful career in business. Today, no company can afford to make investments and present innovations without taking sustainability aspects into account: The new generation of machines consumes less energy during production than its predecessor, products require fewer new resources during manufacture because they are made – at least in part – from recycled material and the electricity comes from solar cells on the company roof. Laws, standards and also a change in social values are driving this change.

The capital markets are also undergoing a readjustment as a result, as I have already outlined. Investors are increasingly investing their money where ESG criteria are the basis for a valuation. The problem with this is that environmental, social and governance criteria are much more difficult to assess than traditional risk dimensions. Rating agencies such as Moody’s, Fitch and S&P only have to assess the risk of default for a potential loan. The relevant key figures for this can be determined quite easily. In many cases, they can already be found in the mandatory publications that companies regularly publish. But how can a company’s commitment to the environment be determined? How important is a photovoltaic system or the conversion of the vehicle fleet to e-mobility? Are high occupational health and safety standards enough to be considered socially responsible?

To date, agencies that prepare such ESG ratings have clearly found it difficult to obtain valid information in these segments and then weight it. For this reason, the ratings of the same company differ significantly from agency to agency. In recent years, reporting based on the GRI Standards has established itself as a helpful tool when it comes to presenting a company’s sustainable actions in a user-friendly way. In the coming years, it will form a central basis for sustainability ratings.

The question of what constitutes good corporate governance can also hardly be taken from the balance sheets and standard annual reports. However, there is certainly more to it than is codified in most compliance rules and CSR guidelines. In my opinion, the Ambassador Program of the Tübingen Global Ethic Institute offers much better approaches to how good corporate governance can be put into practice, which is then reflected in a better ESG rating.

There is no doubt that these and similar approaches will give rise to tools in the coming years that can be used to create correlating ESG ratings. They will further boost the investment options in this segment and thus further support the foundation for the change in value of the economy.