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

Webinar: The Third Era of Integrating ESG Into Investment Processes

[fa icon="calendar'] Mar 6, 2020 12:15:47 PM / by Bahar Gidwani

CSRHub CTO and co-founder, Bahar Gidwani will be leading the BrightTALK webinar The Third Era of Integrating ESG Into Investment Processes on March 10th at 5pm ET. Register for the webinar here, http://bit.ly/38G5A2C.

We appear to be entering the third era of ESG (Environment, Social, and Governance) investment integration. Third Era of ESG.jpgExisting data sets have been broadened to improve their coverage and their providers have clarified their methodologies. New data sets are available that offer insights that were not previously available. A wider range of asset owners are requesting investment products that have sustainability-related claims. This has prompted the creation of passive ETFs, single theme funds (e.g., gender lens, decarbonized), and various types of hedge funds (including long-short and short-only offerings).

This session will discuss what third generation investors appear to be looking for:

  • A consistent signal. Investors want to integrate as much of the available ESG information as possible into factors that are comparable across all companies, industries, and countries.
  • Broad coverage. ESG data influences investment in large cap, small cap, and emerging market equities. It is also increasingly important in fixed income investment processes.
  • Many years of data history. Most portfolio management and quantitative analysis systems perform better when at least five years (and ideally ten years) of history is available.
  • Integration with other sources of data. Investors would like ESG piped to their desktop and already linked with the other financial and market return data they normally use.

 

Register for the webinar here, http://bit.ly/38G5A2C.

 


Bahar.GidwaniBahar 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.

 

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The Third Era of ESG Investment Integration

[fa icon="calendar'] Jan 22, 2020 10:34:56 AM / by Bahar Gidwani

As the 2020 ESG (Environment, Social, and Governance) season begins, we appear to be entering the third era of ESG investment integration.

The first generation of ESG investors used data on topics such as product involvESG arrowement (alcohol, tobacco, gambling) or business practices (anti-union, involvement in Burma) to screen out “bad” companies.  These investors often relied on a single data provider and simple guidelines (e.g., <5% of revenue is OK, more than 5% of revenue is bad).

The second generation of ESG investors decided that a company’s sustainability performance should be related to its riskiness and/or its financial performance.  They used multiple ESG data sets to scan large universes of companies such as the Russell 3000 or the MSCI ACWI.  It was hard to reconcile the disparate signals from these data sets—each was based on its own methodology towards measuring sustainability.  It was also hard to get coverage across an entire investment universe.  As a result, this approach required some finesse and finagling.  An analyst or portfolio manager might have to rely on his or her own instincts or insights about whether or not a particular company would fit into a given investment approach.

The third generation of ESG integration has now begun.  The existing data sets have been broadened to improve their coverage and their providers have clarified their methodologies.  New data sets are available that offer insights that were not previously available.  A wider range of asset owners are requesting investment products that have sustainability-related claims.  This has prompted the creation of passive ETFs, single theme funds (e.g., gender lens, decarbonized), and various types of hedge funds (including long-short and short-only offerings).

As is often the case with new theories, proof of their validity is not yet available.  While many claims of investment outperformance, risk avoidance, and social impact are being made, few participants in the ESG space seem able to share evidence that supports these claims.  Academic studies are lagging far behind.  Most seem to still be mulling era 1 or 2 issues.  This is not an unusual situation for the money management market.  Many past “hot” investment ideas have turned out to be money-losing duds.

It is probably impossible to list all of the themes that are currently being pursued.  There seem to be hundreds of competing theories for how best to generate and use ESG data.  Here are few of those that have received the most attention:

Theory

Why It Might Work

Issues and Concerns

Machine Learning

Natural Language Processing can look for signals of ESG-related opportunities or risks. By going outside the scope of most traditional ESG data sets, these systems offer a chance to trade ahead of the market.

Only a small number of companies have frequent signals. Both false positives and false negatives are hard to identify in advance. Only a limited number of investors can use a system before its benefits would be arbitraged by the market.

Materiality

Certain ESG factors may be tied to a company’s success. An investor can combine data on these issues with traditional financial and market information to get a better long-range view of company’s future performance.

Various groups have attempted to identify which factors are material. However, their assessments disagree and there is little empirical support for any of these systems. In many cases, only a few companies report each factor. This makes it hard to do systematic research or to make consistent decisions across an entire industry.

Engagement

Invest in companies that have weak ESG performance. Engage with them to improve their policies and reporting. Benefit from the increased attractiveness of the company to other ESG-interested investors.

Companies may not respond well to pressure from investors on business-related matters. It may take several years for the benefits of ESG-related changes to take effect and be noticed. Most investors don’t have such a long-term investment horizon.

Factor Analysis

Dump ESG data into a quantitative model and uncover significant factors. Structure a portfolio to take advantage of the results.

Given the lack of data (most ESG indicators are not available for most companies) and the inconsistent way that ESG data is generated and reported, the quality of ESG data may be too poor to use in quant models. ESG factors may not be stable over time, as they are driven by social issues and current topics.

Passive

Include ESG factors in the list of things that can be used to “tilt” a portfolio. Position the resulting portfolio as attractive to groups of investors who care about a particular ESG-related theme.

The restrictions associated with tilting portfolios generate tracking errors and can increase the costs of managing the portfolio. This may cause passive ESG funds to systematically underperform their benchmarks.

Aggregation

Combine together a lot of different ESG data sources. Create a new rating that incorporates the information from the underlying sources, but has broad coverage and an improved ability to predict future market performance.

Averaging disparate sources of ESG data does not give good results. (This was tested in era 2.) A new method for aggregation is required—one such as CSRHub that uses Big Data methodologies to properly weight and combine a range of sources. The resulting ratings may not contain alpha (but could provide an estimate of consensus that could be used to generate alpha via other means).

 

It takes at least three to five years to determine if an investment approach has promise.  It takes another ten years to be sure that the approach will survive the test of market cycles and changes in market structure.  The first and second eras of ESG integration did not produce any huge winners or star funds.  The third era has many new ideas and approaches.  Even without solid academic foundations, we can hope that one or more of them turn into a mainstream path for ESG integration.

To learn more about CSRHub, our ESG/CSR metrics or how you can improve your ESG scores, contact us here.

 

 


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 230 million data points from 650+ data sources including 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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CSRHub’s Bahar Gidwani speaking at Generating Alpha

[fa icon="calendar'] Feb 7, 2019 10:24:42 AM / by CSRHub Blogging

CSRHub CTO and Co-Founder Bahar Gidwani will be speaking at Skytop gen_alpha-01Strategies Generating Alpha conference, in New York on February 13th. Bahar will join a panel discussing Alpha from Impact: Identifying Opportunities in ESG.

Companies have begun to implement ESG practices to reshape how they create value. This value manifests itself through returns in the equity selection process, as valuation models emerge to demonstrate those returns for institutional investors who seek out companies with strong ESG practices and ratings.

The Generating Alpha 2019 program will address topline issues in the ways that allocators select investments through fund managers and through the advice of investment consultants.

This full-day discussion will include information on financial evaluations, portfolio allocations and how investment experts create portfolios using ESG factors as core drivers of value. The program will also address benchmarking (using indexes and other vehicles) to manage risk, volatility and other considerations facing institutional investors today.

FEBRUARY 13, 2019
EDELMAN
250 HUDSON ST
NEW YORK, NY

Alpha from Impact: Identifying Opportunities in ESG

Moderator: Paula Luff, Director, Sustainability and Impact, Inherent Group

Panelists:

  • Kyle Balkissoon, Partner, Stance Capital
  • Hernando Cortina, CFA, Director, Indexes & Analytics, JUST Capital
  • Bahar Gidwani, CFA, FSA, Co-founder & CTO, CSRHub
  • Jared Landaw, Chief Operating Officer and General Counsel, Barington Capital Group, L.P.Title

 

For the full program, click here.

Friends of CSRHub receive a 25% discount off registration using code CSRHUB2019.

As the corporate landscape evolves around global, social, environmental and economic change, Skytop Strategies works to facilitate discussion with executive-level corporate leaders, institution investors, stakeholders, reputable industry experts, and authoritative NGO/government agencies around corporate strategy. 


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 605+ data sources including 10 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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Bloomberg - Uncovering value in the evolving sustainability space: in conversation with CSRHub

[fa icon="calendar'] Nov 27, 2018 9:49:23 AM / by CSRHub Blogging

Bloomberg interview

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.

ESGHub Guide 1

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

 

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Insights Into FB Heron’s ESG Investment Process: A Case Study

[fa icon="calendar'] Sep 5, 2018 10:05:41 AM / by Bahar Gidwani

Our friends at FB Heron recently published a summary of how they arrived at their current ESG (Environment, Social and Governance) investment process.  It should be interesting for anyone who is trying to bring ESG factors into their own framework.Heron

Six years ago when Heron declared its intention to invest 100% of its assets for mission, they needed to find new ways to track and visualize the portfolio as it changed over time.

As is true for many foundations, FB Heron invests both directly and via outside managers.  The article starts with a four box screening system that sought to remove “bad” companies and portfolios and focus investment on “good” ones.  We then see that there is a broad distribution of good and bad performance—even after this type of screening. 

The largest segment of their endowment is invested in publicly traded companies, so it was extremely important to find a data partner that had social performance data on that universe. Heron works with a few data providers to do so, including CSRHuboekom, and others.

Heron uses CSRHub’s percentile rankings to help keep comparisons consistent and account for inherent differences across industries. The 0%-100% score can be applied to all of their corporate holdings. 

Heron uses the CSRHub scores of the commonly associated benchmarks (like the S&P 500). The weighted average helps them get a sense of how much of the fund was allocated to higher scoring companies, relative to the benchmark.

Heron has attempted to convert their scoring into a -5 to +5 scale. For now, the percentile scores are scaled so the average enterprise (50th percentile) receives a score of 0. They believe this scale is overly simplistic — however view it as a step in the right direction. Heron has achieved “relative” goodness—a distribution that is markedly superior to that of the market.  But, it continues to struggle with “outliers.”

Please see the FB Heron piece for their thought leadership in forming their evolving portfolio.


Bahar_Gidwani-9Bahar 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 provides access to the world’s largest corporate social responsibility and sustainability ratings and information.  It covers over 18,400+ companies from 135 industries in 133 countries. By aggregating and normalizing the information from 550 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers, API partners and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.

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