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August 20, 2002
New Tool Quantifies Corporate Environmental Performance
    by William Baue

London-based TruCost launched a single-framework rating tool that allows for a quantitative comparison of companies' environmental performance.


Recent studies suggest that corporate environmental performance can affect companies' stock prices. This should interest investors seeking to identify value and risk in their current stock holdings as well as in potential investments. However, how can investors make an apples-to-apples comparison of corporate environmental performance? And likewise, how can companies with positive environmental performance distinguish themselves objectively from their competitors?

Last week, London-based TruCost Plc. launched a new rating tool for measuring corporate environmental performance. TruCost distinguishes its services from other ratings systems in several ways. First, TruCost is striving to establish a standard comparative tool by making the tool universally applicable.

"We felt that there is a genuine desire amongst business to disclose more information regarding environmental impact and performance," said TruCost Chairman Simon Thomas. "We believe that this has largely been discouraged by the absence of a single framework allowing fair comparisons to be made between companies and across sectors."

Second, TruCost assesses a company's operations throughout its entire supply line, and accordingly, all the way through to its investments. Such comprehensive coverage, claims TruCost, raises the probability of identifying hidden environmental liabilities.

TruCost believes a major advantage its assessment system has over other systems is that it quantifies the environmental impact of a company's actual practices.

"Many of [the rating tools] in the market are qualitative, corporate-governance-orientated," said Dan Dias, TruCost director of research and product development. "But we are focused on the actual operation of the business, not what the board members do or say."

TruCost wants the numbers to speak for themselves.

"We use as a starting point audited financial statements, we then make adjustments for externalities," Mr. Thomas told SocialFunds.com. "Any other relevant information, such as membership of sustainable management schemes, are accommodated and rewarded by the system. In the absence of information the system always defaults in favor of the environment."

Companies pay TruCost to be rated and TruCost considers its clients as "members." TruCost will publish all its members' ratings, making the system transparent. Limiting comparisons to the universe of TruCost members would severely hamper the usefulness of the tool, a fact that TruCost has taken into account.

"We have already provisionally rated 75,000 UK companies in order to pre-populate our database," said Mr. Thomas. "So sector comparisons and comparisons between members and nonmembers are already possible. Because ratings based on publicly available data are inherently conservative, this creates a natural incentive for non-members to join, disclose more information and improve their ratings."

TruCost plans to unveil a new website this week for mass-marketing its product to companies of all types and sizes. Currently, the system contains 43 founding members, including such influential UK companies as Consignia, Land Securities (ticker: LAND.L), Royal Bank of Scotland (RBOS.L), and Innogy.

TruCost also seeks to be inclusive of small and medium enterprises (SMEs), which are often overlooked in favor of rating highly visible large corporations.

"We have designed our system specifically so that SMEs can use it," said Mr. Thomas. "Firstly it uses as a starting point financial information that all companies routinely collect so that information gathering is not an issue. We have priced our service at a level that shouldn't become an obstacle to take-up--it costs 1000 regardless of the size of the organization."

 

 
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