What is non-financial rating?

22 Jul 2021

notation-extra-financiere

It is impossible to assess the value of a company on the basis of its economic performance alone these days, especially given the environmental issues at stake. Non-financial rating allows companies to be assessed on many other criteria related to the well-being of our planet. What exactly is non-financial rating? What are the criteria for rating? What is the impact on companies? How to have your company assessed? IPAG lifts the veil for you.

Extra-financial rating: definition

In the past, the value of a company was estimated solely on the basis of its economic performance. This is no longer the case. The extra-financial rating is based on the company's respect for social values, its behaviour towards the environment, its governance and its social commitment.

This rating is part of the CSR approach, which, let us remember, aims to encourage companies to modify their vision and strategy in order to integrate environmental and societal issues into their operations.

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What is a non-financial rating agency?

The first non-financial rating agencies were created in the early 2000s. This new type of private agency has the task of evaluating companies on several criteria concerning the environmental concept. These are independent companies, paid by investors and not by the companies. These agencies may or may not be specialised in a particular field. Some work only with small, private or public companies, and others focus on the environmental dimension or the company's social commitment.

What are the ESG criteria for the attribution of the extra-financial rating?

As independent companies, non-financial rating agencies do not rate all companies on the basis of the same criteria. These criteria may also vary from country to country. The main ESG criteria are :

  • The social criterion: the social criterion concerns relations at work, respect for diversity (culture, nationality, gender, sexual orientation, religion, socio-economic status of employees, possibility of development at work for all, etc.), respect for human rights and, more generally, working conditions.
  • The environmental criterion: the rating agency analyses the initiatives taken by the company to limit its impact on the environment. Companies with green growth, working towards energy transition and working towards sustainable development (e.g. use of renewable energy) are rewarded.
  • The governance criterion: the agency observes whether the company behaves in a socially responsible manner. The transparency of management remuneration, the distribution of powers, and the rights of employees and minority and majority shareholders are all assessed.

Other criteria, such as HR management, customer relations, supplier or subcontractor relations, corporate governance and social commitment are almost always taken into account. In general, agencies take into account all non-financial criteria. While the criteria that can earn companies points are varied, some factors are eliminatory, regardless of the extra-financial rating agency chosen. Companies that use child labour, test their products on animals, or are involved in gambling, prostitution, arms or tobacco are automatically eliminated.

What is the scoring methodology?

Each rating management company has its own rating system for non-financial analysis. The analysts do not use a standardised method to carry out their rating. However, they often use the same method:

  • Consult public documents.
  • Drawing up precise questionnaires (for each member of the company and its service providers).
  • Organise meetings with employees to determine the performance of the company's initiatives. These meetings also serve to verify the application of national standards and the preventive measures taken by the company.

The rating system differs from one agency to another. The rating system differs from one agency to another, but often agencies use the rating system of financial rating agencies, i.e. grades from A to D, supplemented by + or - signs.

The different non-financial rating agencies

Here are some of the rating agencies and their specialisation (where they have one):

  • DJSI - Dow Jones Sustainability Index: sustainable development.
  • TFS - Together For Sustainability: chemical industry
  • Standard Ethics: international agency specialising in CSR and corporate governance.
  • Novethic: sustainable finance and climate, responsible business practices.
  • Vigeo Eiris: sustainable development and social responsibility.
  • EthiFinance: evaluation of corporate social responsibility.
  • BMJ CoreRatings: extra-financial rating of local authorities and companies.
  • RepRisk.
  • Oekom.
  • Triodos Bank.
  • Arcet Cotation.
  • Innovest.

As you can see, rating agencies reward socially responsible companies. Their rating makes it easier for companies to obtain investments, a higher enterprise value, but also a better brand image. Economic performance combined with good social performance and environmental commitment is the goal of many companies. Would you like to train to participate in the environmental and ethical responsibility of companies? Work for a socially responsible company? Discover the programme of our CSR master.

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