ISS Finds Improved ESG Ratings Alongside Rise in Controversies
ISS ESG, an arm of ISS, released ESG Review 2019, an annual analysis of the state of adherence by companies across the globe to environmental, social, and governance (ESG) criteria. This year’s report finds the share of companies covered by ISS’ Corporate Rating and assessed as “good” or “excellent” (both assessments lead to Prime status) now stands at 20.4 percent, up from just over 17 percent in the previous year.
This year’s report also shows that the group rated with medium or excellent performance (on a four-category scale of poor, medium, good or excellent) now includes more than 67.5 percent of covered companies in developed markets. This represents an all-time high over the 11-year history of the report. Similar patterns can be observed among companies in emerging markets, the report finds, albeit at a considerably lower level. Broken down by sector, Household & Personal Products has the highest share of Prime-rated (i.e., good to excellent performance) companies, followed by Semiconductors and Electronic Devices & Appliances. Sectors with the lowest share of Prime-rated companies are Food & Beverages, Oil, Gas & Consumable Fuels, and Retail.
Meanwhile, ISS states Norm-Based Research, which identifies significant allegations against companies linked to the breach of established standards for responsible business conduct, saw a more than 40 percent rise in the number of reported controversies across all ESG topics. ISS says this exemplifies a growing misalignment of corporate practices with stakeholder expectations that are grounded in UN Global Compact and the OECD Guidelines for Multinational Enterprises.
ISS stated at the close of 2018, failures to respect human rights and labor rights together accounted for the majority (56 percent) of significant controversies assessed under ISS’s Norm-Based Research. Industries that are most exposed to controversies in the environmental area are Materials, Energy, and Utilities. On social matters, Materials is also leading, similarly followed by Energy and Capital Goods. The governance area sees most controversies within Banks, Capital Goods, and Pharmaceuticals & Biotechnology.
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