Environmental, Social, and Governance (“ESG”) metrics and standards have become more prominent in 2017, and as certain investors and activists are evaluating company adoption of ESG factors in their operational strategy, compensation, and governance, a bevy of ESG reports and ratings have emerged to help investors with their reviews. The difficulty with ESG, is the wide variety of potential metrics and the accuracy of the data on those metrics for a given company. For example, the Bloomberg ESG Data Service, which is available to investors on the Bloomberg terminal, includes over 900 potential data points boiled down to 120 indicators. The information is collected through sustainability reports, annual reports and company websites and other public sources, as well as some company contact. Over 12,000 customers use the Bloomberg ratings.
As the Center recently reported, the strategy to push companies to incorporate ESG metrics into their operations has shifted dramatically. In lieu of putting pressure directly on companies, activist groups have instead sought to put pressure on investors to require the disclosure and use of the metrics by the companies in which they invest by encouraging them to sign on to the voluntary United Nations Principles for Responsible Investment (UNPRI). The governing body for the UNPRI has even began threatening to remove signatories which are not adequately engaging the companies they invest in on ESG disclosures and metrics and reporting that engagement. In the rush to the fill the void and attempt to provide services, structure and standards to the growing ESG metric evaluation industry, several groups have emerged to evaluate companies on behalf of investors, not unlike what proxy advisory firms currently do on more routine governance matters. Unfortunately, the number of groups, combined with the excessive number of ESG factors, has created even more confusion. Recently, the Davis Polk law firm published an overview of the eight most notable ESG rating companies as well as an explanation of the rating scale, methodology, and both the reputation and usage of the firm. These include:
- Bloomberg ESG Data
- Corporate Knights Global 100
- Dow Jones Sustainability Index
- MSCI ESG
- Thompson Reuters ESG Research Data