Muyot says that the GRI walks companies through what sustainability factors are material to their business and maps out what is material to society. But according to Nick Andrews, ESG Analyst at CharterMast Partners, who has consulted for companies as they begin the process of disclosing ESG data and publishing sustainability reports, this may take a few years.
The bottom line is that even if companies publish sustainability reports, they may not be disclosing the ESG information that is most material for their industry or the regions where they do business.
Beyond that, while 80% of the Global Fortune 250 companies publish sustainability reports, only 30% of the Forbes 3000 do so. And until recently, most companies that published this data were based in Europe.
But sustainability reporting is increasing in both Asia and in the U.S. Last November, the GRI established a presence in this country called Focus USA. And the Big Four accounting firms, all of whom have a thriving sustainability practice, are backing the effort.
Meanwhile, Muyot says, his universe of sustainable companies is the best of the best, a judgment he makes based on their transparency regarding ESG factors.
Trying To Build Better Mousetrap
So how does CRD's methodology work? The system looks at 200 metrics-25 for financial, 28 for environmental, and the rest more or less divided between social and governance.
Financials are expressed as percentages or ratios so they can be easily compared. And since most of the environmental indicators are also quantitative (for example, tons of carbon emitted into the atmosphere,) CRD "normalizes" these figures by dividing them by a company's market capitalization. The idea, again, is to render these environmental metrics comparable between companies.
"We've been able to normalize everything," Muyot says. "That's why our system is different."
Most of the social and governance data is qualitative, and CRD expresses this information as yes/no questions. For example, such questions ask if the board has a sustainability committee, or whether the board has a structure for say-on-pay? "These are additional factors that are not a 2.56," Muyot says, "but they actually have a material impact in terms of helping determine which are the most sustainable companies."
From there, CRD compares each quantitative metric for a company against the same metric for the other 1,200 companies it ranks, and gives it a score of zero to four. Qualitative issues, which have far more metrics and are answered in a yes/no manner, earn either a zero or one.