Financial and extra-financial rating: where is the equilibrium point?

The CSR (Corporate Social Responsibility) theme is now very much present in the public debate. Extra-financial rating is key to present companies’ actions and approaches but also to help investors differentiate them. That being said, are financial and extra-financial ratings equal?



What Covid crisis taught us


2020 has shown the impact that an unknown factor has on companies and their capacity to adapt. It appears that French companies with a CSR policy avoided the worst, compared to their competitors.

Even if this could appear as a coincidence, it will most likely push investors to prioritise companies with CSR policies. And the use of an extra-financial score is a tool favoured by a growing number of actors. It is a

“resilient and competitive factor”, says Novethic (expert in financial sustainability).

For investors, it is a way to determine which company is to be added to their portfolio, when for companies it is a way to develop their attractiveness. We can bet that the current conjuncture will speed up the transition process of companies regarding CSR policies.


What does extra-financial rating mean


The extra financial rating is based on an evaluation of various criteria such as environment, social impact and governance. They are called the ESG criteria and have a different impact among activity sectors. A 0 to 100 scaled score is then established, often by rating agencies.


Once it is required by an investor, it is called a declarative scoring, opposite from a requested scoring that is made following a company demand. Nowadays, the first one is the most common.


New challenges for CSR policies


During the last few years, micro companies specialised on the extra financial rating, mostly in Europe. On the other hand, big corporations in the classic financial rating sector such as Moody’s, S&P or Fitch started to integrate ESG criteria in their own scoring method. They also favoured external growth by buying some of these agencies and position themselves on this new activity. Does it necessarily mean this is the future of scoring?


We can only observe that investors give more and more importance to companies with CSR policies. This can be explained by the brand new and coming laws such as the European law SFDR (Sustainable Finance Disclosure Regulation) and their French counterparts (Pacte law, DPEF…) but also and mostly by the consumer behaviours that favour a high ESG score.


Nevertheless, this area is still immature. The extra-financial rating sector lacks control and standardization in the calculation method which varies among agencies. As for today, this new market needs to be regulated and there is a will, mostly in Europe, to harmonize the regulations in order to define a common way to rate companies on CSR criteria.


Lately, Olivia Gregoire, in charge of Social Economy, Solidarity and Responsible Economy as French Secretary of State in the Ministry of Economy, declared that a study on the ESG rating was being held on the European level, proving that this topic is receiving more and more credit among our deciders.


Matthieu Delprat

Market Manager Assistant at Ellisphere

France

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