This document discusses Vigeo Rating, a company that provides Environmental, Social and Governance (ESG) ratings of companies. It has rated over 2,500 issuers globally using over 300 evaluation criteria across six domains. Vigeo uses a team of 70 analysts over a six day period to assess each company. The document outlines Vigeo's methodology, which begins with international standards and identifies managerial principles to develop evaluation criteria to measure company performance. It also discusses how non-financial ESG information can help investors reduce risks and identify opportunities, and that good ESG performance may lead to higher financial returns or at least prevent underperformance.

1. Evaluation of CSR in
financial terms
Brussels
22 October 2013

2. Vigeo Rating
2.
11 years as the European leader on researching
Environmental, Social & Governance (ESG)
performance of companies around the world
§
2500+ issuers covered in Europe, North America, Asia-Pacific and
Emerging markets
§
More than 300 action principles under review, based on universally
opposable standards and guidelines (UN, ILO, OECD, Global Compact…)
§
Rating on a scale from 1 to 100 on the basis of 38 criteria spread on 6
domains
§
§
70 ESG in house analysts, average assessment 6 days per company
Multicultural team with 16 nationalities; offices in Paris, Brussels, Milan,
Casablanca, London
Our Core business: deliver ESG data to investors, showing the
(potential ) material (financial) impact of a company’s CSR
performance

3. Vigeo Methodology
3.
More than 300 action principles under review,
based on public international standards, allowing us to precisely question companies’
governance and managerial systems on the degree to which they have integrated
universally recognised CSR objectives.
Internationally
recognized
standards
Conventions,
Recommendations,
Statements,
Guidelines from the
UN, ILO, UNEP, OECD,
Global Compact,
European Union, etc.
For countries
For companies
Evaluation
criteria
CSR Domains of
analysis*
Universally defined
Social Responsibility
objectives
~ 300
Managerial action
principles
38
Sustainability
drivers
Based on recognized standards,
identification of action steps for
companies were to create
evaluation criteria
Environment
Human Resources
Human Rights
Community
Involvement
Business Behaviour
Corporate
Governance
Consolidation of criteria into
domains, each of which
represents the interests of a
different company stakeholder
*See appendix 1 for the exhaustive presentation of Vigeo Sustainability Criteria

4. Steps in the analysis process
1
GENERIC
EVALUATION
FRAMEWORK
Based on
universally
opposable
standards and
guidelines
(UN, ILO, OECD,
Global Compact…)
6 domains
38 sustainability
drivers
2
SECTOR
ANALYSIS
Analysing the
materiality of CSR
issues
Assigning sector
weights to
sustainability
drivers
3
INFORMATION
COLLECTION
Collecting and pretreating public
information from
companies and
stakeholders
Additional
information
through the
specific questions
to companies
4
COMPANY
ANALYSIS
Analysis of
managerial
systems
• Leadership (L)
• Implementation
(I)
• Results (R)
4.
5
PERFORMANCE
MEASUREMENT
• Scores and
ratings
• Company
profiles
• Sector studies
• Alerts

5. Importance of non-financial
information for investors
5.
ESG info can help reduce and manage risks for investors + Identify
opportunities
Reduce Risks: avoid being involved in controversies and allegations that can
have an adverse material impact on company’s performances: fines due to
corruption or anti-competitive behaviour, fines linked to ENV pollution,
scandals, controversies related to human rights issues, problems in supply
chain (textile industry Bangladesh – mining strikes and violence in South
Africa)….
Take advantage of opportunities: companies investing in energy efficient
technologies / reducing energy and greenhouse gas emissions, saving costs…
taking lead in opening new markets with green products…/ companies with
well developed HR policy : less employee turnover, higher productivity.
Companies investing in customer satisfaction…

6. Good ESG performance = higher
financial return?
6.
• No clear figures that they overperform the market. When we compare
Sustainability Indices with mainstream indices we see that in general they
are in line or slightly over perform, but also follow the economic cycles. In
general, also more long-term strategy.
• But on the other hand, what we clearly see is that bad performers in
general underperform, and at least that for example involvement in
controversies and allegations in short and mid-term can have severe
financial impact + impact on reputation. (mining companies in South-Africa
hit by social unrest)

7. CSR and HR management
Board diversity: there is a consensus that more diverse board in terms of
educational background/nationality/cultural background/sex will avoid the
problem of ‘group thinking’ which hinders the development of new ideas
within a company.
Executive pay:
Link CSR performances with short and long term bonuses
-
-
-
-
-
-
-
Health and safety indicators
Employee turnover
Employee satisfaction
Diversity indicators
CO2 emissions
Customer complaints/satisfaction
Absence of controversies & allegations
• Good
HC
management
will
go
hand
in
hand
with
an
overall
good
CSR
performance
• Good
HC
management
will
go
hand
in
hand
with
good
economic
performance
7.

8. Main SRI strategies
In Europe, we distinguish seven main SRI strategies:
• Sustainability themed investment
• Best-in-Class investment selection
• Norms-based screening
• Exclusion of holdings from investment universe
• Integration of ESG factors in financial analysis
• Engagement and voting on sustainability matters
• Impact investment
8.

9. Concluding remarks
• Integration of non-financial indicators into mainstream
financial analysis
• Wide range of ESG strategies used by investors
• Materiality of ESG factors is a key driver
• Increased ESG reporting by companies
• Integrated reporting / third party verification
• Link ESG strategy with overall company strategy
• Looking over the frontiers: good practices in Emerging
Markets
• Focus E - S - G: balance
9.

10. CONTACT
Jordi Lesaffer
Research Manager
Jordi.lesaffer@vigeo.com
10.