Part 1 - July 07, 2020
Factor control: isolating specific biases in ESG ratings
Following years of research and debates on ESG analysis, there is still only an emerging consensus as to its benefit, and also no internationally ratified formal agreement that would stipulate what indicators should be required information for performance assessment and wider impacts evaluation.
Many studies have tried to capture this material effect on financial performance, with some success as seen in recent meta studies. However, before examining materiality, it is important to ask what type of information ESG scores try to capture in the first place? In this study, we seek to explain what new information they bring, especially for issuers, explore how much ESG scores say about the sustainability efforts and performances of those issuers, and examine which parts of those efforts are driven by external factors that are not specific to the issuer.
The purpose of these questions is not to disregard current ESG scoring and rating methodologies, but to statistically explore the role played by such factors to widen investors’ choice with some additional lenses when looking at ESG scores.
Read More About
Part 2 - April 20, 2021
Contribution of themes to ESG Ratings: a statistical assessment
A FTSE Russell ESG rating is the culmination of a rigorous process that combines various aspects of an issuer's total Environmental, Social or Governance exposure and performance, into a single score. Whereas the process synthetises ESG information objectively, a company’s exposure to the Environmental, Social or Governance themes is ultimately driven by its activity. However, while some themes are important to all issuers, and will participate in most of the FTSE Russell’s ESG rating, others will contribute less.
With the attention of investors being increasingly focused on sustainability issues, awareness of Environmental, Social and Governance ratings characteristics is essential, as it enables a better overview of their meaning.
This paper answers the question, “What themes matter most in ESG ratings?”. It explains the information that underpins FTSE Russell’s ESG Ratings and identifies the themes that provide the highest contribution to an overall score. It:
- Provides an overview of the FTSE Russell ESG dataset and rating methodology
- Measures the ESG themes’ individual contributions to the overall ESG performance
- Distinguishes the most contributing themes by industry group
- Proposes approaches on how best to use the various themes’ identified contributions
