rfu’s Sustainability Models

An analyzing and rating model for sustainability is to acquire the ecological, social and economic quality of an analysis object to be analyzed and to make it measurable as precisely as possible. Comprehensive (positive and negative) criteria, embedded in a basic sustainability concept, operationalize the complex matter in terms of natural and social sciences and enable rating that is well-founded and traceable and can be used for investment and management decisions beneficial (i.e. with positive performance or risk effects).

rfu has developed specific methods for the respective issuer categories:

• for corporates (respectively their stocks, bonds and other securities)
• for sovereigns (bonds)
• for commodities (investment via derivative instruments)

rfu´s rating methodology for corporates

The “technological heart” of our activities is the rfu Sustainability Model, which has its origin in the 1990’s. Continual optimization of the methodology, criteria and the research process born by inputs from scientific research projects as well as more than 1000 fold practical use have helped to create one of the most mature tools for external rating of corporate sustainability.

rfu’s Sustainability Model is made up of two levels of criteria: exclusion criteria as well as stakeholder and product criteria.

Exclusion Criteria

Exclusion criteria include activities, technologies and practices that are incompatible with the principles of sustainability. In the standard method, six groups of exclusionary screens will be used, and these criteria can also be adapted specifically to the customers:

• Armament
• Nuclear energy
• Addictive drugs
• Gambling
• Problematic gene technology
• Violation of human- and labor rights
• Controversial business practices
• Severe environmental damages
• Fossil energy
• Other activities and practices with strongly adverse ethical, social or ecological effects

Stakeholder & Product Criteria

The stakeholder and product criteria are based on the stakeholder model, which is supplemented by a value chain analysis of the products or services. The criteria are entered in a matrix with four managerial levels and six stakeholder groups:

Each intersection of the matrix forms a rating field, to which criteria are assigned. On the whole, rfu’s Sustainability Model includes 100 single criteria, which are operationalized by approx. 400 quantitative and qualitative indicators.

Weighting & Aggregation

Weighting of the single rating fields depends on the relevance for the respective company (e.g. due to affiliation to a sector, regional structure or position in the value chain).

The features of the criteria will, over several levels, be aggregated to one overall rating on a scale from C- to A+ or – in case of a restricted amount of data – to an indicative rating from a to c.

Attestation of Performance

rfu’s Sustainability Model has stood the test and established itself on the market for many years:

• Such index products as VÖNIX impressively show the positive performance effect of rfu’s Sustainability Model.
• By now our research is incorporated into the investment policies of portfolios with an overall volume of several billions of Euro.
• Labels and awards (e.g. Austrian Environmental Label) for products on the basis of our concepts demonstrate high credibility and expressiveness.
• Companies endeavour to be included in our indices and investment universes and use this in their presentation to the outer world.

rfu´s rating methodology for sovereigns

The ecological and social evaluation of sovereigns was for a long time a stepchild of the capital market-oriented sustainability research. In 2015, with the goal of creating a scientifically sound and simultaneously practicable and meaningful methodology the rfu´s sovereign rating model was first developed. Meanwhile covering almost all states worldwide.

Exclusion criteria

Exclusion criteria include governmental regulations and practices that are incompatible with the principles of sustainability. rfu´s standard criteria include:

• Nuclear weapons or other weapons of mass destruction
• Offensive military policy or warfare
• Death penalty
• Restricted democratic freedom, limited civil and political rights as well as human rights violations
• Severe corruption
• Insufficient environmental policies (regarding climate protection and biodiversity)
• Expansive nuclear energy policies

But also client-specific criteria and definitions can be implemented, as well as external standards and label criteria.

Positive criteria

The rating methodology is based in the three pillar model of sustainability: society, environment and economy. Recognized scientific concepts were selected for the derivation of specific criteria. For the social and economic pillar, the fundamental human needs theory from Manfred Max-Neef and the system-theoretical approach from Hartmut Bossel were used. The ecological pillar is oriented on the planetary boundary concept of the Stockholm Resilience Center. Thereof over 100 criteria and indicators were derived.

The raw data predominantly originates from international organizations (like UNO, FAO, WHO, Worldbank, OECD), professional associations or NGOs as well as scientific publications and media.

Weighting, Aggregation and overall rating

The features of the criteria will, over several levels, be aggregated to one overall rating on a scale from C- to A+ or – in case of a restricted amount of data – to an indicative rating from a to c.

Commodity Sustainability Rating

For commodities such as metals, energy and agricultural products, for a long time, there was no sustainability rating coverage. rfu´s methodology for commodities was developed in 2018/2019. Its’s the world´s first model that conducts systematically and on a scientific basis sustainability ratings for about 30 of the most important commodities for the investment industry.

Structure and criteria

Goal is to integrate all the relevant social and ecological aspects along the whole life cycle (“cradle to cradle”). Where reasonable governance aspects are considered. Social and environmental standards are closely linked to the countries where production takes place. So, the sustainability evaluation integrates a commodity´s regionally determined risk structure, derived from the rfu Sovereigns Rating.  Subsequently, commodity-specific research is made. This takes into account social and ecological effects of the state-of-the-art production technologies (e.g. mining processes), specific properties of a commodity (e.g. carbon emissions, land use) and data on criteria such as employment standards, relation to communities and business practices (e.g. major controversies). This part of the methodology is based on the rfu Corporate Rating.

The raw data predominantly originates from international organizations (like FAO, WHO, OECD), professional associations or NGOs as well as scientific publications and media.

The commodity rating has a multitude of parallels and interfaces to the rfu model for corporates as well as for sovereigns, due to the fact that commodities are provided by corporates and are closely linked to the basic conditions of the countries of origin.

Aggregation and overall rating

The weightings are adopted from the relevant sector of the rfu corporate model (e.g. Energy, Metals & Mining, Food & Beverages).

The features of the criteria will, over several levels, be aggregated to one overall rating on a scale from C- to A+.

Due to the methodological consistency, a commodity rating (e.g. of gold) can be compared to a representative in this sector (e.g. gold mining). Direct conclusions can be drawn regarding the positive or negative contribution a company makes.