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Deeper ESG Scoring Transparency for Corporates – Transparency for Investors to follow

Deeper ESG Transparency for Corporates – Transparency for Investors to Follow

05-11-2020 | Insight

The nature of corporate value creation is changing at an incredibly fast pace, as social responsibility continues to gain attention as a critical factor for longer-term business success. Companies participating in the Corporate Sustainability Assessment (CSA) have long understood this trend and the importance of considering environmental, social, and governance & economic (ESG) criteria in their business strategies. By reporting key sustainability metrics and benchmarking their performance on a range of industry-specific issues, companies participating in the CSA have been able to demonstrate dedication to the highest standards of ESG reporting and action planning.

Speed read

  • S&P Global is taking action to stay ahead of ESG information needs
  • The link between ESG disclosure and corporate value is growing
  • ESG investing has become mainstream - new reality for attracting capital
  • Data and education are key to enhancing decision-making
  • Deeper transparency is a win for all

Taking Action to Stay Ahead of ESG Information Needs

The prominence of ESG issues today and the market demand for greater insight are reshaping requirements for corporate disclosure and analytics. Customers, investors, and other stakeholders are seeking to learn more about a company’s ESG track record, while companies themselves are looking to dig deeper on their own strengths and weaknesses in order to take meaningful action. To stay ahead of the curve, S&P Global will be releasing new information from the CSA to participating companies in the form of question-level scores as of 13th November 2020. Once companies have had an opportunity to familiarize themselves with their scores at question level, S&P Global plans to provide the capital market with increased insight into question-level scores.

What are question-level scores?

Approximately 100 questions are asked across on average 23 criteria, with each question containing sub-questions (answers to which are called data points). These data points are aggregated to create question-level scores, providing an additional layer of granularity and valuable insights, while keeping the underlying details confidential when the data points are not publicly available.

“Access to S&P Global ESG Scores on a question-level is a step-change in transparency. We value it for our own company and see it as a great sign if investors also want this level of insight. We expect this to lead to an acceleration in our discussion with investors, more interest, and more in-depth discussions.”
Michael Dickstein, Group Director Sustainability and Community, Coca-Cola HBC

The Growing Link between ESG Disclosure and Corporate Value

As ESG market opportunities accelerate and risks intensify, companies are looking to identify ESG gaps and sharpen their focus on performance relative to peers and to build strategies for a sustainable future. Access to question-level scores will provide additional granularity to support these individualized benchmarking activities at a time when evidence shows that companies with a focus on financially-material ESG issues outperform others.(1)

“If a company is able to point to transparent ESG scores and performance metrics, it could turn them into KPIs for sustainable or “labelled” lending or bond issuance. Some investors may find harmonization of KPIs with ESG disclosure particularly compelling. ESG information transparently available down to the individual question bolsters the function of the entire sustainable investing ecosystem.”
Harun Dogo, Executive Director, Global Sustainable Finance, Morgan Stanley

“Sustainability is a strategic issue for SGS. Our performance in ESG ratings like the S&P Global CSA is used by our top management to understand our relative position, as well as our relative strengths and improvement areas. Being able to understand how we score on question not just criteria level will enable us to put the focus on the exact areas that still need improvement. I am sure our top management would welcome such a detailed level of insight.”
Paula Ordonez Crespo, Global Head of Corporate Sustainability at SGS

The New Reality for Attracting Capital

Financial institutions are looking to dig deeper on a range of ESG factors that are expected to have an impact on a company’s growth, profitability, capital efficiency, and risk exposure. Many are taking steps to prepare for expected new regulations regarding ESG disclosure. Additional insight will help support portfolio optimization and capital allocation towards companies with superior ESG performance. Companies with little information available about their ESG performance will be at a disadvantage. This is especially the case with investor interest surging as some of the biggest funds set up with ESG criteria have been outperforming the broader market during the COVID-19 pandemic. (2)

“If companies want investors to consider them, they need to give this ESG information out. If they don’t disclose it, they will be off the radar screen of many investment teams. Regulators are moving quickly, and firms like ours need to disclose this information by company. If it’s not available, companies will be out of sight and face higher costs as they look to attract investors.”
Robert De Guigné, Head of ESG Solutions, Lombard Odier Investment Managers

Data and Education Enhance Decision-Making

Companies and financial institutions see the value of question-level scores that aggregate data points for informing business strategies and investment decision-making − even if the underlying elements are not revealed.

“We understand that companies consider some information as confidential. In such cases, an aggregated question score will be useful for our modelling. Consulting transparent and comprehensive ESG frameworks and accessing question scores should also be valued by corporates to better understand how to go from A to B in their ESG performance.”
Stefano Maffina, Senior ESG Research and Data Analyst, State Street Global Advisors (SSGA)

Deeper transparency is not just about making more data elements available, but about understanding how scores are constructed. Understanding the underlying methodology and knowing what data points are gathered, and what analysis is performed to create scores can be informative and educational for the market.

Deeper Transparency is a Win for All

S&P Global is committed to enhancing ESG intelligence for the global marketplace, and additional transparency will provide a deeper understanding of the corporate sustainability themes and actions that are shaping our world. Better ESG information can lead to more meaningful, actionable insights by decision makers. We believe that companies participating in the CSA will benefit from additional insights to guide corporate strategies, as well as the breadth and depth of S&P Global's reach in capital and commodity markets.

Footnotes

(1) The ESG themes dominating corporate conversations in 2019, Trucost Blog, April 29, 2019

(2) Major ESG investment funds outperforming S&P 500 during COVID-19, S&P Global Market Intelligence, April 2020