March 31, 2009
European Sustainability Research Association Develops Standards of Performance
by Robert Kropp
The Association of Independent Corporate Sustainability and Responsibility Research releases a
Voluntary Quality Standard to ensure that the work of investment research providers is transparent
and has verifiable quality.
Seven European corporate sustainability research organizations have been certified by a new
international Voluntary Quality Standard (VQS) for Corporate Sustainability and Responsible
Investment research. The research providers are among the thirteen current members of the Association of Independent Corporate Sustainability
and Responsibility Research (AI CSRR), formed in 2002 at the request of the European Commission
in order to promote confidence in Corporate Social Responsibility (CSR) by improving quality
management and stimulating transparency.
Investment researchers provide a
fundamental source of information for investors, and the need by investors for transparency and
verifiable quality has led to increasing demand for reports that analyze not only the financial
performance of companies, but increasingly extra-financial environmental, social and governance
(ESG) factors as well.
The failure of rating agencies to correctly assess the value of
mortgage-backed securities was a contributing factor to the global economic crisis. The failure
served to emphasize a need for independently verifiable information from research companies whose
work investors need to trust in order to make informed investment decisions. If the agencies had
developed a model of transparency regarding the quality of the information they provided to
investors, their failure could have been mitigated or avoided.
The VQS assessment and
auditing process requires research groups to focus on continuous quality improvement, implement
best practice and codes of conduct to ensure independence and integrity in the research process,
and publish an externally verifiable Transparency Matrix to reinforce trust and confidence in their
"In 2001, the European Commission brought together a number of
investment research groups in order to galvanize and reinforce the SRI sector," said Stephen Hine,
Head of International Relations at Ethical
Investment Research Services (EIRIS), a UK-based socially responsible investment (SRI) research
organization. Hine also serves as Vice-Chair of the AI CSRR. "The Commission was keen to see the
independent research groups act in a more coherent fashion with a view to answering questions about
He continued, "The Commission wanted transparency from research groups on
how they conducted their research, and demonstration from them that quality control was built into
The development process that resulted in the launch of the VQS occurred
in stages, starting with a draft quality standard and Transparency Matrix authored by the AI CSRR.
The documents were then analyzed in consultation with such groups as investors and other customers
of the research providers, corporate stakeholders such as industry trade associations, public
administrations and other members of civil society, and auditors and other experts in non-financial
rating and accountability.
The stakeholders agreed that there was a need for a VQS-type
standard, and saw independent verification of research information as a key element. The
stakeholders also found transparency to be the most important issue of the exercise.
April 2008, after a two-year period during which each of the seven founding members of the AI CSRR
went through an audit process, the association published its report on its CSRR-QS rating quality
standard, the first quality standard to be conceived and developed at a sector level in the field
of CSR and socially responsible investing (SRI) research and analysis.
The heart of
CSRR-QS is found in the Eleven Commitments. Subscribed to by all signatories, the Commitments
require that research providers assess companies by means of independently collected data, include
the relevant global impacts and operations of companies, identify best practices and performance
beyond compliance with minimum legal standards, and include social and environmental criteria in
Also, research providers must ensure a balanced approach to corporate
assessment, ensure that relevance and materiality are included in their assessments, ensure that
the criteria and methodology are applied consistently, and include input from relevant
Finally, assessments of companies must be up-to-date, methodology must be
transparent, and continuous improvement must be demonstrated through staff development and
monitoring of quality and performance.
The AI CSRR developed its Transparency Matrix as an
instrument through which research providers would disclose the main features of their research and
evaluation methodologies. Research providers were not required to make publicly available internal
quality management instruments, although the certification body of the AI CSRR would have access to
Hine of EIRIS said, "The Transparency Matrix strikes a balance between how much a
research group should reveal information when it is a commercial entity, and reinforcing a black
box mentality. Potential clients can look at the Transparency Matrix and find publicly available
information that gives credibility to what a group does and how open they are."
to promote quality in a diversity of research settings, the VQS has been adopted thus far by seven
members of the AI CSRR, all of whom have been certified by an independent Certification Council.
The seven research providers are Ecodes, EIRIS, EthiFinance, GES, imug, oekom, and Vigeo. All are
located within the European Union.
Observing that US research companies might have been
waiting for publication of the VQS, Hines said, "We want to reach out to the major US research
companies such as KLD and RiskMetrics to join what is not intended to be a strictly European
phenomenon. It is just as applicable to companies elsewhere in the world."
contrasted the efforts by the AI CSRR to provide transparency for the investment research sector
with the actions of US-based rating agencies leading up to the economic crisis.
been an outcry about how poorly rating agencies have performed in relation to this economic crisis,
and a call for increased regulation of them has resulted," he said. "A transparency matrix for
investment research companies is ahead of the curve and the responsible thing to do."
Hines concluded, "In an age when a lack of transparency has led to such problems, perhaps what
our association has taken on will serve as encouragement to the entire financial industry. People
need some reassurance."
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