The following are some of the points mentioned in a seminar about ESG feed from Refinitiv

Points mentioned in the session

  • ESG data is collected from publicly available sources
  • 350+ content search research analysts trained to collect ESG data across the globe
    • Annual reports
    • Company websites
    • NGO websites
    • Stock Exchange Filings
    • CSR Reports
    • News Sources
  • Score all the companies on many metrics
    • End goal is to provide the raw data behind the metrics
  • Audited by third parties
  • Data is updated every weekly. The idea is that we are not editorializing the info
  • Core ESG Data Model
    • More than 450 data points, ratios and analytics
    • Of the 450+ metrics, 186 comparable measures are used in the ESG scoring
    • These metrics roll up in to
      • ESG Score
        • Environmental
          • Resource Use
          • Emissions
          • Innovation
        • Social
          • Workforce
          • Human Rights
          • Community
          • Product Responsibility
        • Governance
          • Management
          • Shareholder
          • Corporate Social Responsibility strategy
      • ESG Controversies Score
        • ESG Controversy: Controversies across all 10 categories are aggregated in to one category score
  • Controversy scores is from outside sources. This lays out external view on the ESG score. Any incidents that have been reported on the company is combined with ESG score
  • Coverage
    • 80% of the global market cap and 76 countries
    • 500 ESG metrics including scores and grades
    • 14k companies with ESG data
    • 800k individual fixed income securities
    • MSCI Emerging markets - China
    • MSCI Europe
  • Key ESG differentiators
    • Raw Data
    • Transparency and Auditability
    • Company Coverage
    • Data History
    • Objective Data
    • Scoring Customization
    • Integration
  • ESG Scoring Methodology
    • Full transparency to the source documents
    • Raw data points that allow for customization
    • ESG controversies
    • Simple to understand with percentile rank scoring
    • Weights that automatically adjust based on measures for each category
  • Fully Integrated Proposition
    • Best in-class screening
      • Identify companies that lead their peer group in respect to environmental and social performance
    • Governance and Engagement
      • Use our content to engage with companies around their ESG practice
    • Ethical negative screening
      • Screen and avoid companies with reported involvement or revenues in products that don’t meet your socially responsible mandates
    • Incorporate ESG
      • Incorporate ESG issues in to your financial analysis to identify sources of risk and opportunity linked to sustainability

Five Steps in Scoring methodology

  • Step 1 : ESG Category Scores
    • For boolean questions, a default of 0 is assigned when no relevant data is found in the disclosure of the companies
    • If numeric data point is reported by a company, only then a relative percentile ranking is applied considering all the companies in the industry group reporting respective data point.
    • To calculate Environmental and Social scores, TRBC industry group is used as benchmark. For governance categories, country of incorporation is used
  • Step 2: Materiality matrix
    • A matrix of category weights is computed with columns of matrix indicating the 10 pillars and rows representing various industry groups. The cell values represent the weightage that will be applied for a company in a specific industry group for a specific pillar
    • Based on various themes for the 10 pillars, there are data points mapped to them. These data points are used in computing the materiality matrix. For example, for Emissions pillar, all the relative medians of each industry group is computed and compared to create a decile ranks. Based on the relative medians at an industry level, an overall relative median is derived across all industry groups. Decile weights are then assigned to various industry groups based on this distribution of relative medians for industry and overall relative median of all the companies
    • Category weights of an industry group is derived by dividing magnitude weight of a category by sum of magnitudes of all categories magnitudes of all
  • Step 3: Overall ESG score calculation and Pillar Score
    • Category weights per industry are applied to the individual measures of industry for each pillar
  • Step 4: Controversies Score calculation
    • ESG controversies score is calculated based on 23 ESG controversy topics with recent controversies reflected in the latest complete period
  • Step 5: ESG Combined score

ESG Feed - Information gleaned from other webinars

  • Key Performance indicators are derived using the underlying measures
  • Mine officers and directors to retrieve measures data
  • ESG score is based on proprietary model that is based on
    • Category weights matrix and company specific measures collated from various company-disclosed measures
  • There is a possibility of green washing and this is mitigated via Controversies score that is then used to create a ESG combined score
  • Based on the prime issuer of the fixed income security, ESG score of the bond is disseminated
  • Track companies mentioned in 23 benchmark across the world
    • 2003 - components of seven indices were covered
    • 2017 onwards - coverage has increased by 1000 companies year on year
    • Coverage of a company until it gets delisted
    • If there is a new company is not a part of the index, the coverage is not discontinued. All the new companies included in the indices are covered
  • All the Asian Companies are mainly from MSCI World Index & MSCI Emerging Markets Index.
  • Seven data measures - the data is collected from NGO.
    • Lobby contribution amounts
    • Corporate equality indices
  • ESG controversies are collected from top editorial sources
    • Reuters
    • FT
    • WSJ
    • authentic editorial sources - no social media content present
  • 150 research analysts who source info from relevant documents
    • Teams are sector specialized in terms of gathering information
    • Beijing - Chinese language data is covered
    • Local language coverage is going to be increased
  • Main source - Company published sustainability report. This is an annual exercise. As and when controversies get reported by the global media, the team makes the data available in the product.
  • All the data is uploaded once a week on Friday. Latest data is available every Monday
  • Key Differentiators
    • Raw Data: To substantiate the justification of measures driving various pillars.
    • Transparency and Auditability: Providing fully transparent data that includes source link, source document name etc. Click through is possible. Any user who clicks a value on the Eikon terminal, the user can navigate to the exact source that mentions the value
    • Methodology is clearly explained in a white paper
    • All data is objective. There is no subjectivity involved. The data is collected from the company documents and is as-reported by the company
    • Scoring customization is possible. The users can use their own methodology to create ESG scores by using the raw measures. In case they want to create a specific score based on only CO2 emissions, they can do so as the underlying measures are available
    • Integration: Not providing standalone ESG data. Also provided datasets such as news, filings, research reports using PermID
    • Standardized data: To make data comparable within a peer group, the units are standardized
      • Companies might report energy use in different units(millions of liters, gigawatt hours, kilo watt hours, mega watt hours). All energy quantitative values standardized to Giga Joules
      • All emissions related measures are standardized to tons
      • All waste related measures are standardized to tons
      • All water related measures are standardized to cubic meters
      • Normalization of data measures is also done by dividing measures to the company’s revenue
  • Core ESG model
    • 186 measures are a collection of data points(collected as reported) and indicators(derived by two or more data points )and sector specific data points(cement CO2 emissions - applicable to cement producing)
    • There are 16 scores provided - 10 category scores, 3 pillar scores and 3 main scores
    • 10 categories fall under 3 pillars
    • Out of 33 controversy topics, 23 controversy topics are considered
    • ESG score - Inside out view of the company
    • ESG Controversy score - Outside in view of the company
  • Key features of ESG scoring methodology
    • Transparency Stimulation - Lack of reporting is penalized
    • Based on percentile methodology
    • Large market cap attract large media attention. This is addressed in the model
    • Relevancy and transparency threshold has been introduced to take care of data points across industry groups
  • Data Quality
    • Date entry pre-product
      • Around 400 error checks
      • Critical
        • Missing Raw Data
        • Range check
        • Inter-related data measures
      • Forcible
        • Scope 1 and Scope 2 does not match the total emissions reported by the company
        • Data as reported by the company discrepancy checks
        • Scaling error
        • Variance checks - pulls the error across fiscal years in terms of measurement units
      • Warnings
    • Post production
      • Once the data is sent downstream, there are another set of 300 checks
      • Veto power data measure is given TRUE when the company has a golden share holder. For state owned enterprises, this is usually TRUE. If the veto power is left blank, then the post production flags off
      • For every data measures, there is a min and max range. This check retrieves the min and max values of the measure
      • Missed any negative data measures for specific industry groups
      • Cross content checks
    • Independent audits
      • Content experts conducting audits
        • Detailed audit for a new hire
          • Full audit on all the companies updated by a new hire
        • Critical data point check
          • Emissions are critical data points and hence a separate audit is done
        • Sample of audits in the downstream products that have ESG content flows through
    • Management Reviews
      • Monthly quality deep dives
  • ESG feed - what’s coming?
    • ESG Fund level scores
      • Equities in the fund should have atleast 70% of the companies in the ESG universe
      • Fund should have atleast 10 equity instruments in its constituents list
    • Semi automated tool - Collated 5 years of history of all the data measures. All the data measures are trained in DIY tool. Trained all the documents that contain data measures. Once all the documents are uploaded, the ML tool will give 5 ready made raw measures that is used to answer a specific data measure
    • MSCI, Russell, Euro-mid cap and small cap
    • ESG contributor tool - Measure-up project
      • Helps companies to contribute their ESG data and review their historical data for two years. Amend two years worth of data and change it accordingly
      • Currently available for Fortune 500 companies
    • ESG Summary report
    • ESG Bulk feed - Will have all the data measures with history from 2000
    • Local language raw data
      • Spanish as well as Chinese raw data
    • 32 new data measures added as part of ESG content and 4 race and ethnicity measures
      • Percentage of Green products
      • ESG Assets under management
      • Policy Cyber security
      • Alcohol and Tobacco retailing
      • Products recovered to recycle
      • Sustainable development goals
  • What’s ahead ?
    • Point in time coverage
      • Clients can track the score change
    • Pvt companies data
      • ESG data will be captured for private companies
    • Addition of local language
      • Arabic, Korean and Japanese language
  • Coverage expansion
    • 900 companies in Sweden, 250 companies in USA, 200 companies in UK
  • AI
    • Enhanced tool that picks up quantitative data measure
  • New Data measures
    • New exclusion metrics
    • Estimate scope 3 - added as part of new data metrics
  • Competitive advantage
    • MSCI, Bloomberg, MorningStar, S&P Global, ISS - Ethix

Takeaways

  • Refinitiv’s ESG feed has a transparent model backing the scores they disseminate. Also if one wants to make use or raw scores and create their own models, they are free to do so. The feed gives that flexibility
  • The ability to weave company disclosed information and external controversy scores is an appealing feature of the feed
  • The fact that the measures and metrics are all benchmarked against industry group or country of incorporation, takes care of comparing metrics across industries that deal with ESG issues differently
  • ESG scores for certain type of Lipper funds are automatically provided
  • The fact that one can pick up any bond based on its ISIN or CUSIP and then trace back the ESG score for the issuer is also an appealing feature of the feed. This means that given a portfolio of fixed income instruments, it is easy to compute the ESG score of the portfolio