Understanding the Standard Ethics Rating

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Sustainability ratings are opinions and assessments about how well a company manages to balance environmental, social and governance issues. It measures companies’ ability to benefit from opportunities and manage risks in the mid- to long-term.
Ratings are provided by Sustainability and ESG rating agencies that specialize in assessing the three areas (Environment, Social and Governance).

Each agency applies its own methodology in measuring ESG issues and uses a specific rating scale to publish its ratings opinions. Standard Ethics Ratings are expressed as letter grades that range from ‘EEE’ to ‘F’ to communicate the agency’s opinion of relative level of reputational and operational risk.

Awareness for rising environmental and social needs and transparent governance models make Sustainability ratings a powerful tool for companies to build a competitive advantage and show investors and stakeholders their ESG commitments.

According to studies, sustainable companies are more able to identify new products, are more attractive for employees, therefore retaining important know-how, foster innovation, strengthen their reputation and reduce the potential impact of legislation and standards.

Standards for Listed Companies

In principle Standard Ethics hopes that in their Articles of Association companies formally refer to the Universal Declaration of Human Rights approved by the United Nations on 10 December 1948.

Standard Ethics also hopes that, in general terms, companies have adapted their structures according to the UN, OECD and EU principles on Sustainability (with particular reference to corporate governance).

The basic conditions that listed companies have to meet are as follows: to hold a competitive position and not a monopolistic one and not being linked to cartels; to make sure that their shares are listed and can be bought without restrictions and that they enjoy substantive rights (voting trusts, for instance, are not acceptable); to have widespread ownership of the capital or no conflict of interest; all Board members must be independent of capital ownership and must abide by a Code of Conduct that ensures transparency; to have procedures to check observance of the latest internationally recognised social and environmental standards (according to the UN, OECD and EU indications).

Further positive elements are: transparent staff selection (including managers); an independent internal monitoring body (liaising with the Shareholders’ Meeting and working at Board level) to check that the Board works in line with the latest UN, OECD and EU standards and principles on conflicts of interest and Corporate Governance; an independent internal monitoring body (e.g. the Audit Committee) which is accountable to shareholders and monitors that the Board works in line with the latest UN, OECD and EU standards and principles on extraordinary accounting and finance; an internal body which reports and facilitates the company’s adherence to the latest international social and environmental standards and principles; an external relations and communications department which works in line with the latest standards and principles on Sustainability and transparency and applies with due independence the “comply or explain” principle whereby failure to comply with international guidelines on Sustainability has to be duly motivated.