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

This past year of social and environment pressures (Covid-19, racism inequity, climate change, global risks) has created a new wave of demand for ESG data and insight. A growing number of corporates, professional firms and financial asset owners and managers are interested in ESG.

For example, more than 2,800 investors, representing 90% of world financial assets have now committed to the UN Principles for Responsible Investment (UNPRI). In response, companies are clarifying and harmonizing their reporting methodologies. More companies are reporting sustainability information. Around 50,000 entities have shared information about their sustainability performance either directly (about 12,000 have incorporated sustainability data in their public filings) or through participating in sustainability-related organizations or reporting systems.

ESG data providers are participating in this new wave of investor interest by offering:

• Broader coverage of entity types (i.e., public, private, not-for-profit) and coverage of more types of investments (e.g., equities, debt, REITs)
• Comparable, stable scores with enough history that an ESG factor can be used in a quantitative model or automated screening process
• Methods for integrating ESG with other financial and market return data sets
  
  

In previous articles we have referred to this new wave as “third-era” investors are driven to integrate ESG data by three themes:

• Marketing. In order to attract and retain assets, investors highlight their ESG methodology and follow it, even if it may result sometimes in underperformance.
• Risk avoidance. Asset managers who prioritize safety and downside reduction may see ESG data as an additional tool for identifying and avoiding risk.
• Materiality. Quantitative analysts have been using “alternative” data sets for years. ESG data may provide a new opportunity for algorithm-driven alpha generation.

ESG data is being integrated into investment processes through direct purchase of individual data sets. They are also being integrated into various types of data curation and distribution systems. ESG data used to be a subcategory of “alternative data.” It has now become its own category and the number of providers and variety of data sets available has grown. 

The new wave or “third-era” investment strategies will rely on data sets that have these characteristics:

• Broad, deep coverage. To be useful in an investment process, a data set should cover not only the equities an investor already holds, but also most if not all equities in similar entities. In some industries, there are large privately held competitors. ESG-oriented analysts should like data sets that also cover private companies.
• Streamlined factors, complete coverage of the factors, and a long stable history. Some ESG data sets offer two hundred, one thousand or even several thousand indicators. This amount of detail can overwhelm investors who are relatively new to ESG issues. It is also difficult to fill in all of “slots” in a data set. Many major ESG sources cannot complete 70% or more of their bottom level of indicators. Finally, most financial analysts are used to being able to study market patterns over long time horizons. No ESG data set goes back further than the 1990s—so analysts still cannot see how ESG factors relate to stock performance through a wide range of market conditions. Still, it is helpful if an ESG source has at least ten years of history and if it has made few or no changes to its methodology during this time.
• Works well when combined with other data sets. Many ESG data users purchase more than one type of data. They extract value from combining these data sets to examine different aspects of a company’s sustainability performance. It is important to pick data sets that have enough identifying information (e.g., ticker codes, ISINs, name variations) that they can be combined. It helps too, if it is easy to pull data from a data provider’s site or application programming interface (API).
  
  

These investors will demand ESG data sets that give them marketing differentiation, ways to reduce risk, and opportunities to generate alpha. They are likely to use several data sets and combine them in a proprietary way, as they seek to make their understanding of ESG data part of their competitive advantage in the investment marketplace.

Each year our friends at Corporate Knights pull together a list of the 100 most sustainable corporations in the world.  They base their assessment on an extensive analysis of the companies they study that includes a review of numerous facts and figures. CSRHub’s aggregation engine strives to determine a consensus of the perceived sustainability performance for the 17,000 companies we track by combining input from 500 different sources.  It is satisfying to see that Corporate Knights’ more direct measurement and analysis approach aligns well with our methodology.  Every one of the 100 companies on the Global 100 list had above average CSRHub ratings and the average overall rank was just below the 90^th percentile.

We’ve pointed out in the past that some of the other efforts to pick top companies have not been as successful.  A simple contrast of the average rating for Corporate Knight’s picks with those of several other popular lists and indexes illustrates the difference. 

We found it interesting to dig down one more layer in the Global 100 scores and look at the averages for each of CSRHub’s twelve ratings subcategories.  As you can see below, the Global 100 companies are especially strong in three areas: Compensation & Benefits, Energy & Climate Change, and Transparency & Reporting.

These three areas have historically been the best understood and most watched aspects of sustainability.  However our field is developing and expanding to include many other areas of corporate social behavior.  It will be interesting to see if Corporate Knights assigns more weight to these other areas of sustainability behavior in the future.  If it does, we could see new players rise to the top of future Global 100 lists.

Search a company on CSRHub and see their sustainability performance.

Bahar Gidwani is CEO and Co-founder of CSRHub.  He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. 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 16,800 companies from 135 industries in 133 countries. By aggregating and normalizing the information from 500 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 and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.

We have coined the phrase “Dark Data,” to describe information on corporate sustainability that exists, but cannot normally be seen and evaluated.  Dark Data is exchanged privately as part of supply chain, certification, and regulatory interactions.  As such, it forms an important part of how companies interact with their environment.

CSRHub already has 94 million pieces of corporate sustainability data-and its database is growing by several million pieces per month.  Our data set includes a large part (we estimate at least half) of the publicly available data on corporate social behavior for about 150,000 entities.  While this sounds good, we believe “dark data” sets may contain information on hundreds of thousands of companies that are not in “illuminated data” sets.

What are the types of dark sustainability data and 5 future trends?

By Bahar Gidwani

Overview

The Green Bond concept was developed in 2007/2008 by the World Bank and Skandinaviska Enskilda Banken (SEB).  They created this fixed income product to respond to demand from investors who wanted to support projects that address climate change.  By 2010, almost $4 billion of green bonds were being issued by a variety of institutions such as the World Bank and the European Investment Bank.  Corporate borrowers began issuing Green Bonds in 2011, followed by municipalities and local governments.

https://www.climatebonds.net/market/history

The initial market for Green Bonds was with socially responsible investors (SRI), who seek to both earn a return and to generate a positive social impact.  The market’s growth has encouraged mainstream investors to participate—and has encouraged a wide array of corporate and governmental entities to initiate Green Bond-fundable projects.  With more than $36 billion of green bonds issued in 2014, they have become a distinct “asset class.”

Green Bond buyers may expect the entities who originate Green Bonds to have better social and sustainability behavior than entities who do not.  This study tests this assumption by examining the perceived social performance of a set of Thomson Reuters-tracked Green Bond issuers, using CSRHub data on perceived social responsibility performance.  We found data on the social performance for 83% of issuers on Thomson Reuters list.  Together they accounted for 99% of the $951 billion cumulative face value of the Green Bonds issued by the 90 distinct entities we reviewed for this study.

To see the full research report, download a complimentary copy here or below.

About the Author

Bahar Gidwani is CEO and Co-founder of CSRHub.  He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar was recently interviewed on Brian Lehrer TV. He plays bridge, races sailboats, and is based in New York City.

About CSRHub

CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information.  It covers over 15,000 companies from 135 industries in 132 countries. By aggregating and normalizing the information from 400 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 and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.

By Jennifer Saunders and Bahar Gidwani

Many aspects of a company’s performance affect its brand value. Marketing spend, distribution strength, and product quality all have proven effects. This study indicates that a company’s perceived sustainability performance may be another important factor.

In 2013, CSRHub showed that its measures of perceived corporate sustainability performance had a 28% correlation with Brand Finance’s Brand Strength Indicator (BSI). CSRHub recently published an update that showed this correlation continues to persist for financial companies. This study extends our analysis to include three other independent brand ranking systems:

• RepTrak Pulse Score.  The Reputation Institute’s RepTrak model examines the relationship between the emotional connection, or “Pulse” score, a “measure of the degree of Admiration, Trust, Good Feeling and Overall Esteem that a company stakeholder holds.”
• Interbrand’s Best Global Brands list.  Interbrand provides an analysis and picture of how your brand is contributing to business results today. Interbrand publishes annually a “Best Global Brands” list of the 100 brands it considers most powerful.
• CoreBrand’s CBI.  Tenet Partners’ CoreBrand Analytics group  generates an annual Corporate Branding Index (CBI) that measures and quantifies the impact of investment in the corporate brand and how brands perform against peers both across and within industries.

We compared data from these sources with CSRHub ratings and brand strength data from our long time data source in the branding area, Brand Finance. CSRHub provides sustainability information on more than 14,000 companies in 127 countries. CSRHub’s ratings and metrics are drawn from more than 380 sustainability data sources.Our research found that the scores from all four leading brand ranking systems correlated with at least one of CSRHub’s sustainability measures. Further, we found consistent results across the four systems that may help brand managers better understand how to coordinate with and support their company’s sustainability programs. In particular, we found a positive correlation between brand and Compensation & Benefits and Environment Policy & Reporting strength. Success in these areas seems tied to better brand rankings.

To see the complete details and next steps, download the full report here.

About the Authors

Jennifer Saunders holds a degree in chemical engineering from Melbourne University, a postgraduate diploma in management from the Melbourne Business School, and certificates in sustainability reporting and stakeholder networks approaches to socio-political risk. She worked for design and manufacturing multinationals for 15 years. Her main focus was on engaging cross-functionally to collect and analyse design performance data, report on sustainability metrics, optimize processes and manage supply chain projects. She recently re-located from Australia to the Pacific Northwest where she has further fostered her career to focus on sustainability working with CSRHub.

Bahar Gidwani is CEO and Co-founder of CSRHub.  He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. Bahar is a member of the SASB Advisory Board.  He plays bridge, races sailboats, and is based in New York City.

About CSRHub

CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information.  It covers over 14,000 companies from 135 industries in 127 countries. By aggregating and normalizing the information from 380 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 and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.