A few years ago, specialist agencies rating companies’ social,
environmental and ethical record were popping up all over the place.
Now the talk is of consolidation. Ethibel and Vigeo have merged,
creating Europe’s largest socially responsible investment agency that
controls a quarter of the market in continental Europe (see page four).
Last year, Det Norske Veritas bought CoreRatings. Meanwhile, Ethical
Investment Research Services has cut the number of international
partners from which it sources information, and brought some of the
work in-house.
This has implications for companies. In value terms, the SRI rating
market is tiny, but its influence is out of all proportion to its size.
Eiris alone supplies data for FTSE4Good, Business in the Community’s
Corporate Responsibility Index and the London Stock Exchange’s
Corporate Responsibility Exchange – in addition to 80 institutional
clients. Companies may gripe, but when agencies make a judgement,
however imperfect, investors and others, including the media, generally
take notice.
From the viewpoint of market efficiency, consolidation is good news. It
should mean fewer questionnaires. Vigeo is right when it says there are
too many agencies and some need weeding out. Companies will have a
better idea who the important players are. Bigger agencies will have
the resources to improve the quality of their research, providing
comparable data so that investors can make more meaningful comparisons
between companies. Pulling together the necessary information within a
coherent research framework that takes account of the differences
between companies is a big job – one that, arguably, no rating agency
has yet met.
Moreover, standards should rise. Many of the providers have long been
vulnerable to the charge that their research methods are opaque.
Consolidation will further encourage the main players to make the basis
of their assessments plain, putting the spotlight on those which do not.
But if some consolidation is good, too much will go against the grain
of this market. Diversity has always been one of SRI’s great strengths.
The wide range of investment approaches exists precisely because
customer demand is diverse.
Basically, institutional investors’ appetite for this type of
information is driving the mergers. Morgan Stanley and Oxford Analytica
predict that within four years SRI will account for 15 per cent of the
UK stockmarket alone, and international credit rating agencies are
beginning to show interest. It would be a shame if, in acquiring higher
standing, SRI forgets its roots.
