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

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.

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.

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.”

Bahar 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 200 million data points from 630 data sources including 10 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 139 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.

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.

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.

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.

Bahar 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 200 million data points from 630 data sources including 10 leading ESG analyst databases. Our patented algorithm aggregates, normalizes, and weights data to rate 18,000 companies in 139 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.

Skytop Strategies will launch its ESG5 Summit on April 4th in New York. CSRHub Co-founder and CTO Bahar Gidwani will be speaking on Materiality: Aligning Materiality to Your Company’s Business Model.

The growing focus on the implementation of environmental, social and governance standards and best practices is driven by increasing scrutiny of the public markets, their analysts, and institutional investors; and growing emphasis on transparency and accountability in today’s global markets. As a result, capital markets now engage regularly in discussions on how to assess the value of ESG practices on overall company performance, working with companies that integrate ESG into their performance equation to quantify, qualify and assign added-value by experts making buy, sell or hold recommendations.

Engage with experts and learn how to apply ESG considerations to your company and your investments.

Materiality: Aligning Materiality to Your Company’s Business Model

Moderator:
David A Lubin, Co-Chairman and Managing Director, Constellation Research and Technology, former Co-Chairman and Managing Director, Renaissance, and Executive Chairman, Palladium
Panelists:
Bahar Gidwani, CFA, FSA, Co-founder & CTO, CSRHub
Cathy Hansell, Founder and President, Breakthrough Results
Richard F. McMahon, Jr., Senior Vice President, Energy Supply & Finance, Edison Electric Institute
Virgus Volertas, Senior Analyst | Corporate Governance, UAW Retiree Medical Benefits Trust

APRIL 4, 2019 
ROYALTON PARK AVENUE 
420 PARK AVE SOUTH 
NEW YORK, NY

For the full program, click here. Receive a 35% discount off the dated price using coupon code CSRHUB2019. Register today.

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 610+ 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. 

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.

Join us for a new webinar, 

Using ESG Ratings and Disclosure to your Advantage, co-hosted by Janice Warren, President of OneReport, Inc. and Cynthia Figge, CEO of CSRHub.

Wed, Oct 4, 2017 2:00 PM – 3:00 PM EDT

Register for the webinar here.

During this lively and informative session, we will discuss Environmental, Social, and Governance (ESG) factors that are recognized as relevant for assessing corporate performance, risk, and value, in addition to the societal and environmental impacts themselves. Yet, investor relations and corporate responsibility practitioners often have a love/hate relationship with the corporate responsibility (CR) and ESG or sustainable and responsible investments (SRI) raters and frameworks that have helped identify and shape these metrics. This webinar helps untangle the what, the why, and the “how-tos” of tackling ratings and disclosure.

In this webinar, we will focus on 2017 challenges and opportunities including:

• ESG landscape shift and the new business case
• Materiality – Identifying and tracking the metrics that matter most
• Internal stakeholders and process: challenges and opportunities
• Navigating the road ahead: ESG ratings and reporting pitfalls, perception, and performance
  
  

Who should attend:

• Those involved in developing or managing a corporate or ESG strategy
• Corporate Responsibility (CR) and sustainability practitioners
• Investor relations
• Corporate communications, corporate affairs, and public affairs
• Leads for ESG disclosure, reporting, and framework/ratings response management

Register for the webinar here.

If you have any questions on how this topic can be of value to your company, please contact us here.

 Cynthia Figge is a forerunner and thought leader in the corporate sustainability movement who co-founded EKOS International in 1996, one of the first consultancies integrating sustainability and corporate strategy. Cynthia is CEO and Cofounder of CSRHub. Cynthia has worked with major organizations including BNSF, Boeing, Coca-Cola, Dow Jones, and REI to help craft sustainability strategy integrated with business. She was an Officer of LIN Broadcasting/McCaw Cellular leading new services development, and started a new “Greenfield” mill with Weyerhaeuser. She serves as Advisor to media and technology companies, and served as President of the Board of Sustainable Seattle. Cynthia has an MBA from Harvard Business School. Cynthia is based in the Seattle area.

Janice Warren is President of OneReport, an innovative provider of corporate responsibility (CR) software for information management, reporting, and publishing. She and her firm help companies navigate leading investment research organizations and environmental, social and governance (ESG) frameworks and address evolving ESG metrics for raters, investors, and stakeholders. Previously, Janice managed investor relations and corporate communications for a specialty materials manufacturer, where she handled responses to ESG questionnaires, external reporting and communications.  Janice is a long-standing National Investor Relations Institute (NIRI) member and has served on the board of the NIRI Boston Chapter.  Her involvement with responsible investment and corporate responsibility began as an undergraduate student at Bowdoin College.  Janice holds an MBA from Northwestern University’s Kellogg School. View more information on OneReport.