FAQs

1. Why do companies need sustainability ratings?

   We have seen that credit ratings have rarely correctly and adequately predicted financial crises or default. Although meticulously calculated, credit ratings look at historical financial data and not enough at management processes underlying a company´s sustainable future success. M&E sustainability ratings analyze all key factors (up to 500) contributing to a firm´s economic and financial success. Markets increasingly seek indicators that give a complete picture of the sustainability of a company.



2. What is and should be meant by sustainability?

   All factors that contributing to a company´s short, mid and long-term sustainable economic sucess, including management of product, finance, operations, marketing, human resources, innvation, technology, governance, community and environmental affairs.



3. Why should a company measure and quantify its investments in sustainability, social responsibility, ethics and governance?

   These areas are normally blank in any balance sheet, hidden under marketing or various expenses. Yet big companies spend hundreds of millions on sustainability and need to account for their returns to investors, stakeholders and their own management. M&E is the only company offering Return on Sustainability - ROS(R), a method to quantify returns of sustainability investments.



4. Is there a connection between good sustainability, social responsibility, environmental performance, ethics and financial performance?

   Over 90% of 130 trustees of British pension funds think that good corporate governance would have a positive impact on the market value of FTSE 100 companies in the long term (5-10 years), according to a survey by Just Pensions in 2004.
   
   A good SRI record can even mean lower borrowing rates: “Interest rates are adjusted to reflect risk, and companies that are positioned as sustainable development practitioners are perceived as presenting less risk, and accordingly the cost of borrowed capital is reduced, thus retaining cash for the company that will generally have a positive impact on share price.” (Brian Schofeld, Employee Benefits Journal, 1 March 2003).
   
   The new indicies such as the FTSE4Good, Dow Jones Sustainability Index mean greater exposure for a company and potentially stronger demand for its shares, thus bolstering its share price. The Domini Index, an index of socially responsible companies, claims to have outperformed the S&P Index on a total return basis since 1990. The FTSE4Good index shows similarly strong performance for well-governed companies.
   



5. How does performance in sustainability and ethical areas impact investor confidence?

   A good indicator for investors’ attitudes towards companies’ performance in ethically related areas is the behavior of large institutional investors such as mutual and pension funds.
   
   2002 data estimate that well over $2 trillion invested in U.S. funds are subject to some form of corporate governance or CSR screening or socially responsible investment criteria. Even governments have actively supported socially responsible investment. Since 2000 the British Government requires that pension funds include socially responsible investment in their Statement of Investment Principles.
   
   The increasing number of ethically-directed funds and the emergence of indices including companies according to their ethical records, such as the large FTSE4Good family, Dow Jones Sustainability Index, Domini Index and the recently launch FTSE ISS Corporate Governance Index and the similar new Brazilian Bovespa Index further show that ethically-related investments are increasing. Estimates are that inflows into socially responsible investments increased by 240% between 1995 and 2003 in the United States. Large asset management firms are implementing SRI in most of its investments, such as LSE-listed F&C Asset Management implement SRI which manages € 189 billion.
   



6. What is the connection between a company’s image and strong performance in sustainability areas?

   In a recent study by Wirthlin (September 2004), the U.S. research firm, 91% of the public thought that being a good corporate citizen pays off for a company in better reputation. A survey among executives by the accounting firm Deloitte & Touch (Socially Responsible Investment Survey 2002) found that 90% considered corporate social responsibility to be already a key element of corporate reputation and brand, and thus of market value. The Wirthlin study also found that 60% of the public at some point refused to buy a company’s product because they thought it was not a good corporate citizen.



7. What is M&E’s positioning in this growing sustainability and ethics market?

   M&E is one of the few companies to very comprehensively and accurately measure companies´ compliance with most, if not all, relevant standards in sustainability, ethics, corporate social responsibility, corporate governance and transparency.
   In addition, we are one of the only international companies to specialize in Latin America, and among the only to assess the oil and gas industry.
   



8. How does an M&E rating work?

   Simplified, M&E conducts an external (pre-audit) and internal, onsite audit of a company according to a customized list of over 400 standards, then writes a detailed report substantiating all evidence for compliance with each standard and communicates the rating (AAA+ to D) to the client. If the client concurs the three year rating is released to the market. Every year the rating is reviewed to insure the same level of compliance. The rating process normally lasts between 2 and 3 months. Please contact us about specifics.