Philip Smith
The plight of the humble bee has been the focus of worldwide attention for a number of years now as the impact of biodiversity loss comes increasingly under the spotlight. The falling population of bees and other pollinators is affecting agricultural output even though, ironically, the sector itself is in part responsible for the bees’ decline.
As the use of insecticides has increased to boost output, and while hedge cutting to increase productive land area has reduced habitats, so there have been fewer bees to carry out the vital role of pollination.
But it is not just agriculture that is causing this biodiversity loss; increasing urbanisation is destroying habitats, and extractive industries are also leaving their mark on the landscape, to say nothing of carbon emissions and climate change caused by industrialisation.
These externalities and dependencies are now becoming a key theme in wider discussions around environmental, social and governance (ESG) issues, not least their measurement.
As a result, and in reaction to investor and other stakeholder pressures, boards are putting ESG firmly on the agenda, though how they report their policies and actions can be inconsistent. A number of bodies, such as the Global Reporting Initiative (GRI), are attempting to place order and standards over these reports. It comes as no surprise to see that a number of credit ratings agencies are now making a move to cast their measuring rules over corporate data in a bid to make sense of these non-financial reports.
Ratings agency interest
Over the past two years, Morningstar has acquired Sustainalytics, S&P has snapped up SAM and Moody’s has taken on Vigeo Eiris. These acquisitions will bring ESG research into the ratings agency mainstream and give far wider access to data, research and ratings. They will also provide a degree of consistency, making comparisons much easier – not just for investors but also other stakeholders such as suppliers, customers and employees.
These ESG ratings highlight the risks and opportunities that corporates face. Climate change and social responsibility can have a direct impact on a corporate’s financial viability, according to Giovanna Michelon FCCA, head of the accounting group at Bristol University’s School of Accounting and Finance and chair of ACCA’s global forum for governance, risk and performance.
[caption id="attachment_913409" align="alignnone" width="1024"] A quarry in the hills of La Laja in east Trinidad. Extractive industries contribute to biodiversity loss. - Photo by Sureash Cholai[/caption]
"There has been a major shift in what the ESG ratings providers are selling to mainstream investors compared to what they used to sell in the social responsibility investment field," she says. "Something that might have gone unaccounted for in the past is now financially material."
Starting to harmonise
The credit ratings agencies’ moves come as the world pays increasing attention to non-financial reporting. The IFRS Foundation is creating the
