CSRHub Blog Research on ESG metrics and comments on sustainability best practice

Two years ago, the sustainability business community elected me to the Global Reporting Initiative (GRI) Stakeholder Council (SC).  Thank you, it has been an honor to represent you.  I recently traveled to Amsterdam to attend the Annual General Meeting (AGM) of the Council.  I thought our readers might like to hear some of what we discussed and learned.

One caveat.  There were parts of our discussion that are (and should be) confidential.  The SC is tasked with advising GRI’s Board on its strategy.  We also select/elect some of GRI’s Board members.  Furthermore, these represent my individual views as a GRI SC member, but I am not an official spokesperson and don’t speak on behalf of the Stakeholder Council or of the GRI. These remarks have been reviewed by SC’s GRI liaison to be sure I’m not revealing information I shouldn’t.

GRI’s Value

Virtually everyone who is involved in sustainability reporting is aware of GRI’s contribution to our field.  It is the best known and the most respected approach to reporting—and has been for many years.  We have shown that companies who use the GRI method for organizing their reporting receive better sustainability ratings.  The table below shows a recent analysis across 4,000 companies.

As you can see, companies that report using the GRI approach have consistently higher ratings on CSRHub than those who don’t.  Since CSRHub’s scores include input from 565 different rating sources, there is a strong correlation between using GRI’s methods and how positively a company is seen across a wide range of different rating methodologies.  Note that reporting only every other year is associated with less improvement.  One of the things we discussed at the SC meeting was that some companies seemed to be skipping years in their reports.  Our ratings data indicates that those who report every year seem to have a ratings advantage over those who don’t.

Harmonization

One of GRI’s focus areas has been the harmonization of different ratings systems.  This is in response to a perceived fractured reporting landscape and concerns from stakeholders (especially in the investment community) for simplicity and comparability in ratings.  The chart below shows an example of the disconnect those using ratings must cope with.

The six companies above are all large and well-studied.  The consensus view of (as measured by CSRHub) is that their sustainability performance is pretty similar.  However, the four ESG rating systems (and credit score) that we show above show a lot of variation.  Even highly experienced users of these data sets are often at a loss to explain these differences.

One of GRI’s responses to these concerns has been to participate in the Corporate Reporting Dialog.  “The Dialog,” as it is known, is supported by seven ratings and standards-setting groups, including CDP, SASB, and Integrated Reporting.  GRI would like to become the “IFRS of ESG.”  Take a look at the International Financial Reporting Standards (IFRS) site, if you haven’t before (they are also a supporter of the Dialog) and you will see where GRI is heading.

What’s Next?

GRI is working on a number of new Standards. These will be released through the Global Sustainability Standard Board (GSSB) process.  There is a hope that more Standards can be released over the next year, than over the past.  GRI has built up its staff in the area and they are clear on their priorities.

Expect a continuation of the working sessions in 2019 for GRI Community members (formerly known as the GRI GOLD community).  There will be several meetings on corporate reporting, on integrating the UN Sustainable Development Goals (SDGs) into reporting, and on how best to organize digital reporting.

Please feel free to send me comments, suggestions, and advice that may help GRI continue to be successful.  I have one more year in my current term and would like to serve you, my constituents, well.

Bahar Gidwani has built and run large technology-based businesses for many years. Bahar holds a CFA (Chartered Financial Analyst) and was one of the first people to receive the FSA (Fundamentals of Sustainability Accounting) designation from SASB. Bahar worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. He has founded several technology-based companies and is a co-founder of CSRHub, the world’s broadest source of corporate social responsibility information. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. He plays bridge, races sailboats, and is based in New York City

CSRHub is the largest ESG and sustainability rating and information platform globally. We aggregate 180M data points from 550+ data sources including 12 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 132 countries across 136 industries. We track 97% of world market capitalization. We cover 12 subcategories of ratings and rankings across the categories of environment, employees, community and governance. We show underlying data sources that contribute to each subcategory’s ratings. CSRHub metrics are a consensus view (any 2 sources may have about a 30% correlation so we make sense of the disparate data). We tag companies for their involvement in 17 Special Issues. We provide Macro-enabled Excel dashboard templates, customizable dashboards, and an API. Our big data technology enables 85% full coverage of data across our rated companies and robust analyses. We provide historical ratings back to 2008.

This blog post was first published on Bloomberg’s website at https://www.bloomberg.com/professional/blog/uncovering-value-evolving-sustainability-space-conversation-csrhub/.

When CSRHub was founded ten years ago, sustainability wasn’t considered a key part of corporate or investment strategy. However, the company’s core team believed that corporate social responsibility (CSR) was a strong indicator of value and a tool for stakeholders to reliably measure it would soon become a necessity.

To meet this growing need, CSRHub created a comprehensive ESG (environmental, social, and governance) rating system to evaluate companies’ performance, based on an innovative Big Data aggregation and normalization model. These rankings are now available on Bloomberg via the APP Portal (APPS ESGH <GO>).

Bloomberg recently spoke with Cynthia Figge and Bahar Gidwani, CSRHub’s CEO and CTO, to discuss the company’s origins, the wide-ranging value of their ESG rankings, and the future of corporate sustainability.

How did CSRHub find its niche in the market and work to expand its reach?

In 1996, Cynthia Figge cofounded EKOS International, one of the first sustainability-related consulting firms in the US. After ten years spent working with a number of major companies, she recognized a need for a broad, consistent measure of corporate sustainability performance. With this in mind, she recruited Bahar Gidwani, and the two started CSRHub, bringing her vision to life. Bahar had previously founded Index Stock Imagery, the world’s first electronic photo repository, pioneering several of the technologies required to categorize and distribute large, disparate data sets, so he was comfortable dealing with the complexities of ESG data. Cynthia and Bahar believed that CSRHub could be both an attractive commercial opportunity and a means for improving corporate sustainability, so they committed to making the company a B Corp—a “benefits” corporation that has both a profit-driven and a public service mission.

What sets your ratings system apart in what is becoming a more crowded sustainability market?

Hundreds of groups attempt to rate various aspects of corporate sustainability performance. CSRHub has aggregated more than 550 sources and more than 5,500 different types of sustainability measurement into a simple, broadly comparable set of ratings. While other ratings systems assess only a few hundred to a few thousand companies, CSRHub covers more than 18,000 entities. Other rating systems tend to have huge amounts of “not known” or estimated data elements, while CSRHub has complete ratings on more than 8,500 companies—97% of world market capitalization.

What is the benefit of operating as a neutral provider?

Rather than pushing a particular view of what is “good” or “bad” about a company’s sustainability performance, CSRHub provides a consensus opinion. It normalizes its ratings so they can be compared across industries and geographies. Users of CSRHub’s system can then compare their own views or those of other data providers against a strongly supported consensus view and look for systematic misperceptions and biases.

How have you tailored your systems to appeal to the greatest variety of clients?

We allow each user to create a profile that expresses his or her own “weight” for each area of ESG. With this in mind, we also provide the ability to adjust ratings for special issues such as the use of animal testing or GMOs in an entity’s products; involvement with regimes such as Iran or Burma; and participation in coal or nuclear power. Each user’s ratings can be uniquely tailored—a reflection of the world as he or she believes it should be seen.

With Fintech continually evolving, how does CSRHub stay ahead of trends and deliver new solutions?

We must constantly incorporate new ways of measuring corporate sustainability. We have consistently updated our back end data management technology to keep pace with the growth in our coverage, data feed, and customer base. Fortunately, there are strong tools available now for supporting a business such as ours, including MongoDB, AWS (Amazon Web Services), Ruby (for our web servers), and JSON (for our Application Program Interface or API).

Where do you see opportunities in the ESG space?

We look for areas that are poorly organized and understood, but that may be tied to longer-term corporate value. We have connected our data to brand strength, risk, the cost of debt, the value of corporate reputation, and the quality of a company’s communications. For data to be valuable, it must be relevant to both human behavior and corporate strategy.

What were some challenges faced in the company’s early days?

We needed to have multiple sources (more than 50) for many companies (at least 5,000) before we could test, tweak, and validate our algorithms. It was initially hard to explain that our system didn’t rely on companies’ self-reported data or on the work of human analysts. Other ESG rating systems started with either publicly reported data or questionnaires sent to a company’s management. Some systems simply tracked and stored each data item they received. Others used analysts to evaluate each data item and turn it into a score. Each source had its own methodology and each assigned its own weights to the factors it considered. By focusing on aggregating opinions, we were able to generate a broader, deeper set of ratings. We also isolated ourselves from being directly influenced by companies’ self-reporting patterns. This has prevented our scores from being “greenwashed” by companies who seek to make themselves look good by reporting a lot of unsupported facts.

How has CSRHub’s position as the broadest and deepest global ESG and sustainability rating and information platform been beneficial?

Our platform increases visibility and awareness of both the ESG ratings of companies and the availability and utility of a wide range of ESG data sources. We believe we are contributing to the development and growth of sustainability measurement in general.

What are some questions you frequently receive from clients?

Our financial clients need help aggregating, interpreting, and using ESG ratings to uncover value and improve their decision making. Our corporate clients are interested in improving their own ESG ratings to better manage multiple stakeholder perceptions of their sustainability. We help both investors and companies find the “signal” in disparate data sets and guide them to generate value from ESG strategies and implementation.

How did you build a partnership with the Bloomberg App Portal?

We have been interested for years in Bloomberg’s effort to collect and organize sustainability data. The Bloomberg ESG Metrics team has built the industry’s broadest (9,000+ companies) and deepest (~900 indicators) set of company-reported data. We wanted to combine our aggregated opinion information with a strong source of company-based facts. Bloomberg users had access to selected data from several major ESG data sources, but they couldn’t easily extract and combine this information with Bloomberg’s ESG Metrics. We believe Bloomberg’s users will enjoy the combination of the ESGHub app’s simple visual map and CSRHub’s coverage of almost all the companies in Bloomberg ESG Metrics. It has been a pleasure to finally bring together these two data sets and two lines of work.

Learn more about ESGHub.

How have your customer needs changed in recent years?

Corporations have developed many programs for improving their ESG performance, in part responding to investor and other stakeholders’ demand. ESG staffs are growing in both size and sophistication. In our capacity as entrepreneurs, we have listened closely to our customers and worked to anticipate trends. We have had to steadily improve our products and tools to maintain the company’s primacy and continue to meet customers’ needs.

About CSRHub

CSRHub is the largest ESG and sustainability rating and information platform globally. We aggregate 180M data points from 550+ data sources including 12 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 132 countries across 136 industries. We track 97% of world market capitalization. We cover 12 subcategories of ratings and rankings across the categories of environment, employees, community and governance. We show underlying data sources that contribute to each subcategory’s ratings. CSRHub metrics are a consensus view (any 2 sources may have about a 30% correlation so we make sense of the disparate data). We tag companies for their involvement in 17 Special Issues. We provide Macro-enabled Excel dashboard templates, customizable dashboards, and an API. Our big data technology enables 85% full coverage of data across our rated companies and robust analyses. We provide historical ratings back to 2008. 

About Bloomberg

The Bloomberg App Portal enables developers to build and distribute applications to increase client engagement and efficiency. Learn more

Part 2 of a 2-part series.

In 2008 CSRHub began measuring performance in corporate social responsibility (CSR). Using ten years of history, we are now starting to answer questions such as: 

• Has CSR performance improved over time?
• What area of CSR is improving the most?
• Is the universe of companies for which ratings are available expanding beyond the large public corporations?
• How strong is the alignment between CSR performance and company CSR reporting on CSR?

More Data on More Companies

A dramatic increase in ratings sources beyond Wall Street-driven and research companies has expanded the field of companies for which ratings can be developed.  For example, the number of companies and other entities studied by CSRHub has increased from 2,000 in 2008 to 18,000 in 2018. In 2008, the major sources of data were the analyst research houses which covered only large public companies. While this data produces rich consistent opinion matrices and remains a vital component of the CSRHub system, other crowd sources, not-for-profit groups, publications, and government regulators helped expand the covered universe to include smaller companies, not-for-profit organizations, and government entities.

Still a Disconnect Between Reporting and Performance

One of the reasons we developed CSRHub was because we felt there was a disconnect between reporting (what companies said about themselves) and performance (what companies actually do).  We could not find a way to pierce the veil and determine performance directly.  This is why we created a proxy based on the aggregate opinion of how a company is performing on ESG (environment, social, governance) issues, from a wide range of expert sources.  Our scores build a feedback loop so that companies can see how their performance and reporting are perceived.  We hope they will use this feedback to improve both the truth about their corporate social behavior and what they tell their stakeholders about themselves.

We recently launched a new tool in partnership with Bloomberg that illustrates clearly that reporting and performance are still only loosely related.  The chart below shows for the S&P 100 a measure of disclosure (the horizontal axis is the percent of Bloomberg’s 900 sustainability indicators that have been captured for each company) against a measure of perceived sustainability performance (CSRHub’s overall rating).  The correlation between these measures is only 28%.  This indicates that there must be other “explanatory variables” that drive how a company’s ESG performance is perceived, besides the extent of its sustainability disclosures.

Looking Ahead at CSR Trends

We don’t expect to see many major new analyst-driven sources of ESG data emerge.  It is expensive and time-consuming to use human analysts to review and weigh a company’s sustainability performance.  We’ve seen new data sets that are driven by news reports, tweets, or other bottoms up evidence.  These sets are interesting, but we have not seen much correlation between them and the many other sources we review.  There are many new sources of data coming from not-for-profit groups—especially those who have focused on supply chain issues.  We also expect government-regulation-driven disclosures to expose more small and mid-size companies—especially in Europe and parts of Asia.

Our big data-driven system seems to be working well and producing useful insights into the relative sustainability performance of thousands of companies.  We plan to continue growing our coverage and tying the signals from our data to tools that can be used by companies, analysts, activists and researchers around the world.

With the exception of the still-broad gap between disclosure and performance metrics, CSR has moved forward over the last ten years.  CSRHub will continue to track the change in emphasis on core issues and incorporate new data sets as they emerge. What gets measured – and reported – is what gets implemented.  We’ll keep working to help keep CSR moving forward for the next ten years.

Bahar Gidwani has built and run large technology-based businesses for many years. Bahar holds a CFA (Chartered Financial Analyst) and was one of the first people to receive the FSA (Fundamentals of Sustainability Accounting) designation from SASB. Bahar worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. He has founded several technology-based companies and is a co-founder of CSRHub, the world’s broadest source of corporate social responsibility information. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. He plays bridge, races sailboats, and is based in New York City.

CSRHub is the largest ESG and sustainability rating and information platform globally. We aggregate 180M data points from 550+ data sources including 12 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 132 countries across 136 industries. We track 97% of world market capitalization. We cover 12 subcategories of ratings and rankings across the categories of environment, employees, community and governance. We show underlying data sources that contribute to each subcategory’s ratings. CSRHub metrics are a consensus view (any 2 sources may have about a 30% correlation so we make sense of the disparate data). We tag companies for their involvement in 17 Special Issues. We provide Macro-enabled Excel dashboard templates, customizable dashboards, and an API. Our big data technology enables 85% full coverage of data across our rated companies and robust analyses. We provide historical ratings back to 2008.

Part 1 of a 2-part series.

In 2008 CSRHub began measuring performance in corporate social responsibility (CSR). Using ten years of history, we are now starting to answer questions such as: 

• Has CSR performance improved over time?
• What area of CSR is improving the most?
• Is the universe of companies for which ratings are available expanding beyond the large public corporations?
• How strong is the alignment between CSR performance and company CSR reporting on CSR?

Steady Overall Improvement

CSRHub’s ratings incorporate the input of virtually every major source of opinion about how companies treat environment, social, and governance (ESG) issues.  Our patented methodology weights and combines these opinions in a way that makes them comparable both between companies and over time. 

The chart below on Average CSRHub Ratings shows that since 2008, average ratings increased by almost 9 points to a peak in 2016. They fell somewhat over the last two years, but have still ended up by 6 points over ten years. Even from 2008 to 2010, through the worst of the Great Recession, ratings rose. The year-to-year changes are modest and gradual over time, suggesting there have been fundamental changes in business strategy for these companies during this period.

Growth in the universe of rated companies may have diminished this improvement

We only provided sustainability ratings for around 2,000 companies in 2008—we could only find about 50 ESG data sources at that time.  By now, we have gathered data on more than 140,000 companies from 550 sources—and offer ratings on more than 18,000.  The growth in our ratings universe appears to have diminished the overall increase in ratings.

The chart below shows that the average rating for all companies in our universe rose more slowly through 2014 than for the consistent set shown above.  Then, as a flood of new companies began reporting information, the average rating for all companies has slowly dropped.

Clear Shifts in Emphasis – the top rated CSRHub category for most years has been “Employees”

Our overall ratings are based on twelve subcategory ratings that in turn feed four different category scores.  We’d written previously about the fact that the emphasis between our four category scores seemed to shift over time.

These shifts appear to be continuing. Governance rose sharply during the 2008-10—probably as a response to the 2008 financial crisis.  Environment ratings surged in between 2012 and 2016, as companies responded to pressure on climate change and water issues.  Employee issues have remained the most highly rated area since 2010 while Community ratings started as the lowest in 2008 and have stayed near the bottom.  The idea that companies are more concerned about their employees than the community they live in is something we believe other ratings groups have not yet noticed.

Look for part 2 in our series tomorrow, as we continue to explore CSR trends.

Bahar Gidwani has built and run large technology-based businesses for many years. Bahar holds a CFA (Chartered Financial Analyst) and was one of the first people to receive the FSA (Fundamentals of Sustainability Accounting) designation from SASB. Bahar worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. He has founded several technology-based companies and is a co-founder of CSRHub, the world’s broadest source of corporate social responsibility information. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. He plays bridge, races sailboats, and is based in New York City

CSRHub is the largest ESG and sustainability rating and information platform globally. We aggregate 180M data points from 550+ data sources including 12 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 132 countries across 136 industries. We track 97% of world market capitalization. We cover 12 subcategories of ratings and rankings across the categories of environment, employees, community and governance. We show underlying data sources that contribute to each subcategory’s ratings. CSRHub metrics are a consensus view (any 2 sources may have about a 30% correlation so we make sense of the disparate data). We tag companies for their involvement in 17 Special Issues. We provide Macro-enabled Excel dashboard templates, customizable dashboards, and an API. Our big data technology enables 85% full coverage of data across our rated companies and robust analyses. We provide historical ratings back to 2008.

CSRHub recently shared fresh insights into how to more effectively use ESG Data.  Bloomberg sponsored the webinar and many of those attending were Bloomberg terminal users.  CSRHub also invited members of its community to hear how to get more out of ESG Data.

We have made the presentation slides used during the webinar available for you to download and use as a reference. 

You may request the webinar replay here.

CSRHub recently launched an application called ESGHub on the Bloomberg terminal (APPS ESGH <GO>).  The app combines CSRHub data with Bloomberg’s ESG Metrics to create a new tool for examining portfolios and other large sets of investment instruments.  The webinar attempted to show why this type of tool is needed and how the tool may help better integrate ESG data into the business processes of those who have a Bloomberg terminal.

Bloomberg’s ESG Metrics is one of the largest sources of company self-reported ESG data.  Bloomberg collects information on 900 indicators from about 10,000 companies.  Other ESG sources use human analysts to generate company ESG ratings.  We showed webinar attendees that company self-reported and analyst-generated ratings tend to be inconsistent and confusing.

Patrick Drum, a senior portolio manager from Saturna Fund, shared his process for selecting instruments for his Sustainable Bond fund.  He reviews a number of specific company-reported items and integrates input from several human analyst rating sources.  His slides showed how hard it was to get consistent company-reported data.  He also illustrated the range of views that human analysts had on the three instruments he wanted to evaluate.

We then showed how CSRHub’s ESG data aggregation normalization process improves the correlation between both self-reported and human analyst data sets.  We discussed the overall distribution of CSRHub’s consensus ESG ratings and showed CSRHub’s big data processing system can bring into focus the data for a particular company.

The ESGHub app (a ten day free trial is available on the Bloomberg terminal at “APPS ESGH <GO>”) brings together Bloomberg and CSRHub data into an easier to understand and use format.  Two thirds of those who attended indicated that they were encouraged now to make more use of ESG data.

The audience asked a number of interesting questions:

Q: Can ESGHub be used to screen green or gender bonds?

A: Yes, if the issuer has shared data on its sustainability programs.  ESGHub combines data from Bloomberg and CSRHub.  It can only screen an issuer if there is data available from both of these sources.

Q: How is CSRHub’s approach to generating a consensus score different from simply averaging a number of ESG ratings?

A: CSRHub scores are a better estimate of consensus than any single or simple average.  The webinar slides gave good examples of the focus and clarity that CSRHub’s Big Data system produces.  There is also information on the CSRHub web site about its proprietary aggregation, mapping, and normalization process.

Q: What strategies for engaging companies about ESG deficiencies could come from using ESGHub?

A: A company that is low on disclosure (has a poor Bloomberg ESG Metrics score) but that is well-regarded for its sustainability performance (has a good CSRHub rating), should disclose more.  One who has the opposite problem needs to improve its internal ESG programs.  ESGHub users should be able to both offer useful advice to companies and illustrate their advice by making ESGHub charts that compare a company to its peers.

Q: Would ESGHub cover companies that other ratings sources don’t?

A: During the webinar, Patrick offered an example of three instruments he considered for his fund.  It was encouraging to see that all three had CSRHub ratings.  Because CSRHub aggregates so many different sources, it should generally have more ratings than any other ESG data source.

Bahar Gidwani has built and run large technology-based businesses for many years. Bahar holds a CFA (Chartered Financial Analyst) and was one of the first people to receive the FSA (Fundamentals of Sustainability Accounting) designation from SASB. Bahar worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. He has founded several technology-based companies and is a co-founder of CSRHub, the world’s broadest source of corporate social responsibility information. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. He plays bridge, races sailboats, and is based in New York City.

CSRHub is the largest ESG and sustainability rating and information platform globally. We aggregate 180M data points from 550+ data sources including 12 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 132 countries across 136 industries. We track 97% of world market capitalization. We cover 12 subcategories of ratings and rankings across the categories of environment, employees, community and governance. We show underlying data sources that contribute to each subcategory’s ratings. CSRHub metrics are a consensus view (any 2 sources may have about a 30% correlation so we make sense of the disparate data). We tag companies for their involvement in 17 Special Issues. We provide Macro-enabled Excel dashboard templates, customizable dashboards, and an API. Our big data technology enables 85% full coverage of data across our rated companies and robust analyses. We provide historical ratings back to 2008.