1. Introduction
2. Calculation
3. Back-calculations
1. Introduction¶
The RepRisk Rating (RRR) is a letter rating that facilitates corporate benchmarking against the peer group and sector of a company, as well as integration of business conduct risks into business processes. The rating provides decision support in risk management, compliance, investment management, and supplier risk assessment. The letter rating encompasses ten categories (AAA to D), which correspond to the following levels of exposure to business conduct risk:
- AAA, AA, A denote low risk exposure
- BBB, BB, B denote medium risk exposure
- CCC, CC, C denote high risk exposure
- D denotes very high risk exposure!
2. Calculation¶
The RRR combines two factors:
1. The Peak RRI for Companies [0-100]
- captures the risk exposure based on a company’s linked risk incidents;
- is updated daily upon capturing new risk incidents (see Company RRI).
2. The Country-Sector Average [0-100]
- quantifies a company’s risk exposure based on its business activities, taking into consideration the sectors and locations in which its linked risk incidents occurred, as well as its country of headquarters and primary sector(s);
- is updated daily based on the RepRisk Index for Country-Sector (Country-Sector RRI) and the RepRisk Index for Countries (Country RRI).
The relationship between the RRR and its factors is outlined in the graph above and equations below:
$$ \text{RRR} = \left\{\begin{matrix} \text{AAA}, & \text{Peak RRI} \lt 20 \text{ and Country-Sector Average} \lt 20\\ \text{AA}, & \text{Score} \lt 50 \\ \text{A}, & 50 \leq \text{ Score } \lt 60\\ \text{BBB}, & 60 \leq \text{ Score } \lt 70\\ \text{BB}, & 70 \leq \text{ Score } \lt 80\\ \text{B}, & 80 \leq \text{ Score } \lt 90\\ \text{CCC}, & 90 \leq \text{ Score } \lt 100\\ \text{CC}, & 100 \leq \text{ Score } \lt 110\\ \text{C}, & 110 \leq \text{ Score } \lt 120\\ \text{D}, & 120 \leq \text{ Score } \end{matrix}\right. $$
$$\text{where}$$
$$ \text{Score} = f\big(\text{Peak RRI}\big) + f\big(\text{Country-Sector Average}\big) $$
$$ f\big( x \big) = \left\{\begin{matrix} 20, & x \lt 20 \\ x, & \text{otherwise} \end{matrix}\right. $$
2.1. Peak RRI¶
The Peak RRI is equal to the highest level of the company RRI over the last two years – a proxy for the overall business conduct risk exposure related to issues of a company.
For more details, please refer to the Overview of Company RRI.
2.2. Country-Sector Average¶
The Country-Sector Average consists of two main components:
The Headquarters Business Conduct Risk Exposure ($H$), which captures the risk exposure of a company's business activity in its headquarters country and primary sector(s).
The International Business Conduct Risk Exposure ($I$), which captures the risk exposure of a company's business activities in the countries and sectors (worldwide) where it was associated with risk incidents.
$$ \text{Country-Sector Average} = \left\{\begin{matrix} \frac{H + I}{2}, & H \gt 0 \text{ and } I \gt 0 \\ H, & H \gt 0 \text{ and } I = 0 \\ I, & H=0 \text{ and } I \gt 0 \end{matrix}\right. $$
$H$ is calculated as an average of the Country-Sector RRIs:
$$ H = \frac{1}{\left| N \right|} \sum\limits_{i \in N} \text{Peak Country-Sector RRI}_i $$
- with $N$ being the set of country-sector combinations of the company's headquarters location and its primary sector(s) e.g., if the company is headquartered in Brazil and has two primary sectors (Forestry and Mining), the set will comprise two combinations: $(1)$ Brazil – Forestry and $(2)$ Brazil – Mining.
$I$ is also calculated as an average of the Country-Sector RRIs:
$$ I = \frac{1}{\left| C \right|} \sum\limits_{j \in C} \Big[ \frac{1}{\left| S_j \right|} \sum\limits_{i \in S_j} \text{Peak Country-Sector RRI}_i \Big] $$
- with $C$ being the set of countries in which the company was linked to two or more risk incidents within the past two years1,
- and with $S_j$ comprising the company's eligible sectors2 for which it was linked to a minimum of two risk incidents in the corresponding country within the past two years1.
Notes:
- If the Country-Sector RRI is not available for a country-sector combination, the Country RRI is used as a proxy.
- 1 The window is extended to up to five years for companies with fewer incidents. If a company is linked to less than eight incidents in the past two years, the Dynamic Time Frame ($T_{Dyn}$) increases to up to five years. In this case, $T_{Dyn}$ is the most recent time window in which the company is associated with eight incidents, capped at five years - i.e., $2y \le T_{Dyn} \le 5y$.
- 2 The eligible sectors include the company's primary sector(s) and related business activities (see the table below).
- If $S_j$ is empty, the Country RRI is used as a proxy for the nested average of the Country-Sector RRIs ($\frac{1}{\left| S_j \right|} \sum \text{Peak Country-Sector RRI}_i$).
- $I$ is zero if $C$ is empty.
3. Back-calculations¶
To ensure an optimal risk estimation, the RRR is based on all data points currently available in the RepRisk dataset. Back-calculations may thus be performed in case new, previously not considered, incidents are added. For example, the RRR of country $A$ on day $t$ will first be calculated on day $t$ but may be recalculated later, if new incidents impacting the initial calculation are added.
Eligible sector table:¶
| Primary sector | Eligible sectors |
|---|---|
| Aerospace and Defense | Aerospace and Defense; General Industrials; Industrial Engineering; Support Services (Industrial Goods and Services) |
| Airlines | Aerospace and Defense; Airlines; Industrial Transportation; Oil and Gas; Travel and Leisure |
| Alternative Energy | Alternative Energy; Food and Beverage; Forestry; Oil and Gas; Utilities |
| Automobiles and Parts | Automobiles and Parts; General Industrials; Industrial Engineering |
| Banks | All sectors |
| Chemicals | Chemicals; Food and Beverage; Mining; Oil and Gas; Pharmaceuticals and Biotechnology |
| Construction and Materials | Construction and Materials; Industrial Engineering; Oil and Gas; Support Services (Industrial Goods and Services); Utilities |
| Development Banks, Central Banks, and Export Credit Agencies | All sectors |
| Electronic and Electrical Equipment | Automobiles and Parts; Electronic and Electrical Equipment; General Industrials; Industrial Engineering; Personal and Household Goods; Technology Hardware and Equipment |
| Financial Services | All sectors |
| Food and Beverage | Food and Beverage; Retail |
| Forestry | Food and Beverage; Forestry; Paper |
| Gambling | Gambling; Travel and Leisure |
| General Industrials | Automobiles and Parts; Electronic and Electrical Equipment; General Industrials; Industrial Engineering; Oil and Gas; Personal and Household Goods; Technology Hardware and Equipment |
| Health Care Equipment and Services | Health Care Equipment and Services; Pharmaceuticals and Biotechnology |
| Industrial Engineering | Aerospace and Defense; Construction and Materials; Electronic and Electrical Equipment; General Industrials; Industrial Engineering; Industrial Metals; Industrial Transportation; Oil and Gas; Support Services (Industrial Goods and Services); Technology Hardware and Equipment; Utilities |
| Industrial Metals | Chemicals; Industrial Metals; Mining; Oil and Gas; Utilities |
| Industrial Transportation | Industrial Engineering; Industrial Transportation; Oil and Gas; Support Services (Industrial Goods and Services) |
| Insurance | All sectors |
| Media | Media; Software and Computer Services |
| Mining | Chemicals; Industrial Metals; Mining; Oil and Gas; Utilities |
| Oil and Gas | Chemicals; Construction and Materials; Mining; Oil and Gas; Utilities |
| Paper | Forestry; Paper |
| Personal and Household Goods | Chemicals; Electronic and Electrical Equipment; Paper; Personal and Household Goods; Pharmaceuticals and Biotechnology; Retail; Technology Hardware and Equipment |
| Pharmaceuticals and Biotechnology | Chemicals; Health Care Equipment and Services; Pharmaceuticals and Biotechnology |
| Retail | Food and Beverage; Personal and Household Goods; Retail |
| Software and Computer Services | Personal and Household Goods; Retail; Software and Computer Services; Technology Hardware and Equipment; Telecommunications |
| Support Services (Industrial Goods and Services) | All sectors |
| Technology Hardware and Equipment | Electronic and Electrical Equipment; Personal and Household Goods; Software and Computer Services; Technology Hardware and Equipment |
| Telecommunications | General Industrials; Software and Computer Services; Technology Hardware and Equipment; Telecommunications |
| Tobacco | Retail; Tobacco |
| Travel and Leisure | Food and Beverage; Retail; Travel and Leisure |
| Unspecified | All sectors |
| Utilities | Alternative Energy; Mining; Oil and Gas; Utilities |
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