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

Bahar Gidwani


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Does Bigger Mean Better?

[fa icon="calendar'] May 22, 2019 9:58:43 AM / by Bahar Gidwani

Do bigger companies get better ESG ratings than small ones?  We believe the answer is “no.”  This seems true across a wide range of companies, whether one measures size by revenue or by market capitalization (a proxy for enterprise value).  Our result indicates that small companies can and should expect to be able to equal or outperform their bigger rivals on environment, social, and governance (ESG) issues.

A comparison of charts from our new Bloomberg app (ESGHub) indicates that big companies disclose more information than small ones.  The chart on the left shows the distribution of disclosure for the S&P 500 Index.  There is a wide dispersion of disclosure profiles (as measured by Bloomberg’s ESG Metrics on the bottom axis) and CSRHub’s consensus ESG rating (as shown on the vertical axis).  The chart on the right shows about 1,500 companies from the NASDAQ 3,000.  There are some companies spread out on the right.  However, many companies are clustered to the left with low disclosure scores.

S&P 500 Index vs NASDAQ 3000

Even though the smaller companies are hard to distinguish based on their disclosure, they do separate on the vertical axis (aggregate ESG rating).  The left-right distinction does not appear to be related to size.  As you can see below, larger companies have only a small tendency towards higher disclosure ratings from Bloomberg.

 

Low Correlation Bloomberg ESG Metrics Disclosure Score and Revenue 

The aggregate ESG ratings from CSRHub also do not appear to be driven by either revenue (left chart below) or market capitalization (right chart below).  This pattern has been stable for at least the past five years.  One theory is that the sustainability story of smaller companies may be simpler and easier to tell than those for large ones.  Smaller companies may also appear more credible on ESG issues, due to cultural biases against “big business.”

 

No Correlation Overall CSRHub and market cap2 

 

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Bahar_Gidwani-10Bahar Gidwani is CTO and Co-founder of CSRHub. Bahar 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 186 million data points from 618 data sources including 10 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 141 countries across 134 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.

 

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ESG Coverage Is Improving

[fa icon="calendar'] May 10, 2019 10:21:52 AM / by Bahar Gidwani

We recently reviewed the ESG coverage status for the 8,686 companies in the MSCI ACWI (All Country World Index).  The ACWI is a popular benchmark for many investors, because it includes approximately 85% of the global opportunities for equity investment.  We felt it would be useful to see how much ESG information is currently available on the companies on this type of broad index.

CSRHub aggregates ESG data from more than 600 sources.  Each source has a different coverage universe.  By combining these universes, we have been able to offer full or partial ratings on 18,000 companies and know that there is at least some information on another 13,000 companies.

As you can see from the table below, we have reached the point where there is CSRHub ESG data on 95% of the companies and 99% of the “weighted value” in the Index.  5,777 companies (81% of the index weight) have full CSRHub scores (overall rating and scores for Community, Employees, Environment, and Governance factors).  Another 1,116 companies (13%) have partial scores while 1,324 companies (15%) have some data, but not enough yet to allow calculation of a CSRHub rating.

MSCI All Country World Index Analysis

We do not have data on the past components for this Index.  However, we can look at the status for the current companies over the past five years.  (CSRHub data reaches back to 2008.)  As you can see below, there has been a dramatic improvement in the number of companies with ESG data over this time period.

CSRHub ESG Ratings Data More Entities

One benefit of this increase in coverage is that ESG ratings can now be extended to cover corporate bond and high-yield debt portfolios.  In a recent study of one such portfolio, we found full or partial ESG ratings in CSRHub on 1,681 of 1,789 holdings—94% coverage.  It remains difficult to put ESG scores on sovereign and municipal bond issues.  However, we have ratings now on many universities, cities, and states.  We may also be able to impute a rating for a locality, based on the ratings of the companies that are headquartered there.

One of the excuses made for not integrating ESG information into corporate or investor decision-making has been that there are too many gaps in ESG data.  It appears that the hard work of ESG sources around the world are gradually filling in these gaps so that we can create a consistent and holistic view of relative ESG performance for a wide range of entities.

 

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Bahar_Gidwani-10Bahar Gidwani is CTO and Co-founder of CSRHub. Bahar 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 186 million data points from 618 data sources including 10 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 141 countries across 134 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.

 

 

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GRI Reporting’s Impact on ESG Ratings

[fa icon="calendar'] Dec 13, 2018 11:18:19 AM / by Bahar Gidwani

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.

Ave CSRHub Ratings vs No of GRI Reports

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.

Diff ESG Rating Systems

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-10Bahar 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.

 

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CSRHub - What's Changed After Ten Years of CSR Ratings: Part Two

[fa icon="calendar'] Nov 8, 2018 9:12:11 AM / by Bahar Gidwani

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.

 CSRHub Uncover Ratings

 

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.

 ESGHub

 

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.

 

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Bahar_Gidwani-10Bahar 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.

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CSRHub - What's Changed After Ten Years of CSR Ratings: Part One

[fa icon="calendar'] Nov 7, 2018 10:06:07 AM / by Bahar Gidwani

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.

 CSRHub Average Ratings

 

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.

 Average RatingsSlumped

 

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.

ECEG Levels

 

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

Download the full report

 


Bahar_Gidwani-10Bahar 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.

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