In The Name of God The Beneficent The Merciful

CSR Rating System

Managing Director: Alireza OmidvarCorporate Governance and Responsibility Development Centre (CGRDC)

By: Amir H. Rahdari

Rating

• The process of rating encompasses gathering data over these indicators and synthesize it into an overall rating based on which investors can make decisions and take actions.

• Normative Rating (Customer-oriented) – deductive

e.g. Hohenheim, Osservatorio FINETICA

• Descriptive Rating (economic-oriented)

• Depending upon the way rating systems are constructed, some utilize filters to prune away non-complying companies. These filters are usually of two types:

• Exclusive social/environmental filters

• financial filters after social/environmental filters

• financial filters before social/environmental filters

The last two systems are capital market-oriented systems.

Ratings and NGOs

The foundation of non-financial information analyses in almost all CSR rating systems is direct or indirect product of NGOs ideas.

In most of rating systems, the final rating as to the rank of companies is made by a committee. However, in some of these institutions the carte blunche granted to these committees have been so extensive that the final results totally deviated from the analyses.

In our system we have two core bodies:

Research unit –operational and analytical role

Rating committee – executive and monitoring role

Risk assessment

The focus here is on analyzing how a company deals with the environmental and social risks it faces. reduction of environmental and social risks

Value enhancement

This type of rating system focuses on corporate management strategies and their orientation towards sustainability

Innovators/pioneers model

Their excess returns stem from the environmental and economic opportunities that arise from innovative products or production processes.

Quality Management:

Process elements such as strategy and planning, operational implementation, evaluation and reporting, as well as establishing stakeholder dialogue, play a key role here.

Common typology of CSR Rating systems in the world

Filters

Most common characteristics of Rating institutions

• Employees:

3-70

Most common size 10-15

• Focus:

Large companies listed on SE (exception for SMEs Dutch–British Kempen)

• Method:

Quantitative: Bloomberg

Qualitative: DJSI

Mixed: Asset4, Ethical consumer

• Screening & Monitoring

Most common characteristics Matrix of Rating institutions

Extension Peripheral CSR rating

Core CSR rating

Solicited rating common in banking industry

e.g. CoreRating (mutual fund), many

Swiss Banks

Stakeholders and Institutional

Investors coalition

independent rating institutionse.g. Vigeo

Unsolicited rating Bloomberg system for security dealers

in the capital markets

Mostly NGOs CorporateKnight (UK)

Both/neither GMI Ethibel, Co-op America, ECRA, Veite

E.Capital (Italy), SERM (UK)

Disclaimer: Any other use of this matrix other than learning is restricted.

Most popular: Best-in-class approach

They show an individual company’s relative position with respect to its competitors and absolute universal CSR grades.

There exists other viable models for industry specific ratings.

Industry specific

The system will comprise of the following elementsConceptual underpinnings and objectives

Methodology inspiration

Methodology integration

Methodology documentation

Data Collection

Data Analysis

Data Assessment/Evaluation

Permits sector differentiation

Reviews of methodology

Inclusion of stakeholder issues

Elements of the framework Categories

Aspects

Criteria/indicators

Ratings thresholds

Methodology coverage

Qaunt./Qual.

Quantitative:

For sector benchmarking

For trend analyses

Sources of information

Universe of companies

Database

Protocol

Feed back tool

, etc.

methodology developments

data collecting

screening

monitoring

assessment

communicating

Finally

we will follow QS standard on transparency and quality of rating systems to ensure that our rating system initiates and continue robustly .

Thank You