Andrea Blackman supports the work of the climate board leveraging her experience in business leadership, strategy transformation, company performance and risk measurement, alongside expertise in sustainability, climate transition and sustainable finance. Previously, Andrea spearheaded the digital transformation of Moody’s flagship research, data and analytics business and went on to lead Moody’s ESG Solutions where she engaged with companies, global regulators, and financial institutions to advance the greening of the economy and the creation of standards and practical tools to foster the journey toward a sustainable future. As part of her role she worked across Moody's to integrate ESG considerations into credit ratings and risk analytics underpinning compliance, supply chain, physical and climate transition risk solutions. In her early career as a banker, Andrea worked with global corporations and financial institutions, and then in the automation of global trading markets where she experienced first hand the complexity, challenges and opportunities at the heart of business transformation.

At Moody’s, we were a medium to large corporation with a VP of Sustainability. We chose a subset of raters and decided to focus on them, which is crucial. Choose what is going to be most relevant for you as a company based on your sector and stakeholders, keeping in mind that there are many different raters with different methodologies and agendas. Depending on a company’s journey, the leadership may not have internal objectives yet, so they’ll find themselves facing a barrage of questions, unsure which to answer first. This is where they can turn to key stakeholders for input. Stakeholders might include investors for debt and equity, industry associations, employees, shareholders, communities impacted by company activity, customers and regulators. This process is influenced by jurisdiction as well; if you’re in Europe, it’s going to be different than in North America or Asia. In any case, my recommendation is to first consider your objectives, purpose, and goals in the short, medium, and long term. Who are your key stakeholders, what matters to them and what information do they need? What are they asking of you? One of the main challenges is that all of the different raters, NGOs, and benchmarking groups apply different definitions. Focus on consolidating the most relevant requests by coming up with a harmonized format for common questions, ideally aligned with an existing reporting framework (GRI, TCFD, SASB, etc.). If I were a corporate, I would respond to requests by saying, “We’re going to align to [framework], so for the questions you've asked, here's how we've redefined them.” Or, you can directly map them to your framework, then get confirmation that you can respond in that format. Also keep in mind that not all companies have all the requested information or verification for what they do have, but as long as documentation is thorough, estimates are usually acceptable. However, it's critical to understand the rating methodology; the way they value information omissions, estimates, or verifiable metrics can dramatically impact your score. Finally, from a company’s perspective, I would gather additional context from raters before submitting any responses, including: 1. A summary level articulation of their methodology; 2. An industry benchmark. If they already have an indicative score for me as a company, I would ask them to position me in my sector and I would ask them for any sector level reporting that they have; and, 3. Their materiality matrix for my sector. The sector classification they assign you to may or may not be appropriate for your business mix, so you might be answering questions for the wrong sector. By being thoughtful upfront with these tactics, you're going to be in a better position to respond to raters’ questions.

That should be publicly available information. Your sector and materiality should not vary widely from one rating group to another. What will vary, and what you need to clarify, is whether they're pursuing a financial materiality framework or a double materiality framework.

I'll be candid with you: the biggest complaints we heard from companies stemmed from their sector assignments. One of the rare instances in which we would not publish a rating immediately was when we got the sector assignment wrong. At some point, of course, the agency’s determination of the sector you belong in is their judgment. An in-depth qualitative assessment — and some sustainability raters don't do any qualitative engagement with the companies they rate — may be the only way to better reflect a company’s business activities and sustainability profile. Every agency has a methodology, but not all raters apply a sector level lens. Even for those that do, it's incredibly hard to do sector allocation when you get into mid-size companies with a unique mix of activities. At some point, they're going to decide the preponderance of your revenue comes from one kind of activity and define you that way. For a large company like Amazon, where we didn't feel we could do a standardized assessment, we added a pretty heavy-duty qualitative overlay, but there aren't many raters doing that.

The perception is that European companies are more advanced because there has been more consideration of ESG risk and impact for longer. European companies may have a better understanding of what it means to transition toward a more sustainable business strategy, but I don't know that they're necessarily more advanced at implementing it than they are in the US, for example. I do think that Europe and the US are probably more advanced than Asia, but that's because there hasn't been a robust debate to the same extent in Asia, with the exception of a few jurisdictions, where it's still somewhat isolated within the larger companies. The major difference is that in Europe, you've got regulations like CSRD, SFDR and EU taxonomy that companies and asset managers are preparing for. New standards continue coming out, for better or worse, for people to get their heads around. In the US, there has been more focus on the environmental subset of climate to the exclusion of other aspects of ‘E.’ Even SASB has only just come out with guidance on areas of focus for the UN Global Compact beyond climate. My experience in the US was that companies would say, “We'll get beyond climate at some point, but it's politically fraught.” Americans don't particularly want to talk about a lot of the ‘S,’ whereas Europe is much more comfortable. Europe seems to be leading because they can have a more informed conversation. As far as corporates implementing change, I'm not sure they really are much further ahead.

The short answer is that they don’t, although I thought this was an interesting question because it speaks directly to the objectives of the company. There is no harm in choosing a few of those scoring initiatives to align with, but you're doing it to position your profile as a company, not to affect your ratings. Ratings are intended for investors, but there are many other stakeholders: you have employees, you have communities that you operate in, you have shareholders, you have government agencies, etc. Choose these voluntary initiatives depending on what your stakeholder assessment tells you, and how you think you can serve your business. For example, if you're dependent on a lot of employees and knowledge workers are your greatest asset, you may want to position yourself as the best employer in your sector. No matter which rankings or scores you follow or participate in, understand their methodology, understand what they're scoring and why, understand who the leaders are in their ranking system and why. Then decide whether that's valuable for your business, because spreading yourself too thin is risky. You may think that once you've got the data, what's the harm in getting more and more and more leading scores? But you don't want to devalue each of those certifications, so as a company, do some upfront research. Who do you want your peers to be, and why? If you have good people assembling your applications for these awards, they should be able to make a case for why an award is worth applying for.

They don't care much, but remember that the assessors are all competing against each other to be the one you choose. Companies think they have to respond to everyone, but that is not the case. This year and next aren’t looking good resource constraint-wise because we're dancing with recession. However, once you've gotten disclosures up and running, they should be pretty straightforward to maintain if they are integrated into a company's regular reporting framework. Ideally, review what information is required from across the scores you’ve shortlisted, and map which ratings and awards matter most to the company’s stakeholders. This should help to prioritize the biggest bang for your reporting buck and bring focus to preparing metrics. A core set of metrics should be relevant in communication to raters, certifications and indices, as well as apply for four different accolades that key stakeholders. This requires being systematic. A company may be resource constrained and run around a bit frantically and burn resources unproductively instead of doing a bit of extra work up front. Before getting started, understand who raters and rankers are, what they do, who is their audience, and what their scoring methodology says about the company.

One thing that companies can do more proactively is understand when they're being assessed. Agencies and assessors work on a calendar based on when they expect companies will report, and they should be willing to shift their assessment data to have access to current information if it is not too far away. If your company is on a cycle, or in the process of shifting your cycle, it is good to communicate your sustainability report publication date internally and externally to provide transparency to all stakeholders.

Hugely important. Clear articulation of policies is really important and centralization of all relevant policies is best, although rarely done. Sustainability agencies will often look across 120 documents to find the information they need on companies. They scan the available documents using artificial intelligence, natural language processing, machine learning, and scraping websites, to look across publicly available documents for evidence of policies, their implementation and their impact. That might include the policy itself, publicly disclosed PowerPoint presentations, conference speeches, and so on. The more an agency has to go digging, the greater the chance that they're going to miss important information about a company. There are many reasons why companies don't centralize policy information. It may reflect the fact that policies derive from a range of functional departments and corporate functions with no centralizing force beyond a Chief Sustainability Officer, which many don't have, the CEO, or the CFO. It's likely a reflection of the early stages in a company's development. If, however, there is a way of recording all that information somewhere centrally, companies will be better off because they can see what policies they have, organize them within reporting categories, and prioritize the ones they want to improve. In general if a policy is very broad, vague, and emotional, it's probably not a good policy. That said, there are stages that companies will go through because they want to be careful not to overcommit. A policy should have a demonstrable objective that is easy to understand and measure. Company policies can simply be aspirational, along the lines of “We believe in civil liberties and work life balance.” That's not a very good policy, because an agency is going to look at the policy, the implementation, and the evidence. A better policy would be, “We want to achieve net-zero by 2050,” but that still doesn’t tell you very much. “We want to achieve net-zero by 2050, and our 2026 objective is to go from A to B. Our 2030 objective is to go from B to C. Our focus for the 2026 target is on scope one carbon emissions.” That's a policy a reader can understand, and it has key metrics that can be evidenced with clear impact. Companies must focus in order to implement policies to serve the sustainable business objectives that best serve the business and stakeholders.

Andrea Well-governed companies usually implement their policies effectively; these are two sides of the same coin. Most of the companies that have had really big problems around reputational risk or supply chain risk were not well-governed. In theory, you're supposed to be able to detect that risk through a standard evaluation process or governance. Governance has been a part of financial analysis for years but typically focused on financial materiality rather than stakeholder impact. The key to good governance is accountability at board level, executive leadership and down through operational units.

Sustainability agencies will monitor policies, implementation and impact. Impact can be self reported or measured through surveys, if appropriate. This is often referred to as ‘inside-out’ information. Agencies will also look at media and in particular adverse media to validate whether the impact reported by the company is reflected by external sources.

This pertains to management KPIs that relate to sustainability goals and the level at which they appear. For example, procurement would be a subset of supplier management, which would be a subset of operational management and financial management. It works its way all the way up to the C-Suite, then the board, so when you're looking at sustainability governance, you're looking for pay-related, performance-related, or behavior-related KPIs that incentivize managers, the C-suite, and board members. If the C-Suite has an objective to pursue a diverse workforce without associated metrics, they may not get far on implementation. I’ll tell a quick story. When I was managing a team, I was never asked to do this, but I reported on the mix of my workforce because that was the only way I knew how to measure diversity. What I did have as a key performance metric, though, was managing a maximum 15-20% turnover rate, because they wanted you to retain talent. I had to put a lot of effort into retaining the talent and managing my retention rate. Of course, it may be that you have a lot of young people who change jobs every two to three years, and you may not succeed, but it is a discrete metric. That's the kind of artifact you look for, all the way up the ranks, beyond the KPIs that drive incentives for the C-Suite, to board oversight and what they will be held accountable for.

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