Refinitiv esg scores methodology PDF

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Las finanzas corporativas son un área de las finanzas que se centra en las decisiones monetarias que hacen las empresas y en las herramientas y análisis utilizados para tomar esas decisiones. El principal objetivo de las finanzas corporativas es maximizar el valor del accionista....

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ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) SCORES FROM REFINITIV April 2020

Contents

Contents ................................................................................................2 Executive summary............................................................................3 Data process ........................................................................................4 Frequency of updates.......................................................................5 Global coverage .................................................................................5 Scores overview .................................................................................6 Scores structure ..................................................................................6 Scores calculation methodology ..................................................8 Step 1: ESG Category Scores .........................................................9 Step 2: Materiality matrix ...............................................................10 Step 3: Overall ESG score calculation and Pillar Score ...... 13 Step 4: Controversies Scores calculation ................................ 14 Step 5: ESG Combined Score ...................................................... 15 Appendix A .........................................................................................16 Appendix B .........................................................................................18 Appendix C .........................................................................................19 Appendix D ........................................................................................20 Appendix E .........................................................................................21 Appendix F ........................................................................................22 Appendix G........................................................................................23 Appendix H ........................................................................................ 24

Refinitiv | ESG Scores

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Executive summary

Refinitiv recognizes the increasingly critical importance of transparent, accurate and comparable Environmental, Social and Governance (ESG) data and analytics for the financial industry. We strive to be the trusted and preferred partner in the transition to sustainable finance and are committed to bringing to the market an array of bestin-class data, analytics and workflow solutions, which allow customers to use Refinitiv data as the backbone of their investment processes. Refinitiv® offers one of the most comprehensive ESG databases in the industry, covering over 80% of global market cap, across more than 450 different ESG metrics, with history going back to 2002. With Refinitiv you can easily integrate ESG factors into portfolio analysis, equity research, screening or quantitative analysis. We offer users the possibility to combine and analyze ESG data using cutting-edge applications for in-depth analysis. ESG scores from Refinitiv are designed to transparently and objectively measure a company’s relative ESG performance, commitment and effectiveness across 10 main themes (emissions, environmental product innovation, human rights, shareholders, etc.) based on publicly-reported data. We also provide an overall ESG Combined (ESGC) score which is discounted for significant ESG controversies impacting the corporations we cover. Ratings are available on over 10,000 companies globally, with time series data going back to 2002. They are simple-to-understand percentile rank scores (available in both percentages and letter grades from D- to A+), benchmarked against Thomson Reuters Business Classifications (TRBC – Industry Group) from Refinitiv – for all environmental and social categories as well as the controversies score – and against the country of incorporation for all governance categories. The Refinitiv ESG scores are data-driven, accounting for the most material industry metrics, with minimal company size and transparency biases. The scores are based on relative performance of ESG factors with the company’s sector (for E and S) and country of

incorporation (for G). Refinitiv does not presume to define what “good” looks like; we let the data determine industry-based relative performance within the construct of our criteria and data model. Refinitiv’s ESG scoring methodology has a number of key calculation principles set out below: 1. Unique ESG magnitude (materiality) weightings have been included – as the importance of ESG factors differs across industries, we have mapped each metric’s materiality for each industry on a scale of 1 to 10. 2. Transparency stimulation – company disclosure is at the core of our methodology. With applied weighting, not reporting “immaterial” data points doesn’t greatly affect a company’s score, whereas not reporting on “highly material” data points will negatively affect a company’s score. 3. ESG controversies overlay – we verify companies’ actions against commitments and to magnify the impact of significant controversies on the overall ESG scoring. The scoring methodology aims to address the market cap bias from which large companies suffer, introducing severity weights which ensure controversy scores are adjusted based on a company’s size. 4. Industry and country benchmarks at the data point scoring level – to facilitate comparable analysis within peer groups. 5. Percentile rank scoring methodology – to eliminate hidden layers of calculations. This methodology enables Refinitiv to produce a score between 0-100 as well as easy-to-understand letter grades. ESG COMBINED SCORE

ESG SCORE

ENVIRONMENTAL

CATEGORIES

AGGREGATED ESG MEASURES ESG METRICS

SOCIAL

ESG CONTROVERSIES SCORE

GOVERNANCE

• RESOURCE USE

• WORKFORCE

• MANAGEMENT

• EMISSIONS • INNO VATION

• HUMAN RIGHTS • COMMUNITY • PRODUCT RESPONSIBILITY

• SHAREHOLDERS • CORPORATE SOCIAL RESPONSIBILITY (CSR) STRATEGY

ESG CONTROVERSY • CONTROVERSIES ACROSS ALL 10 CATEGORIES ARE AGGREGATED IN ONE CATEGORY SCORE

OF THE 450+ ESG METRICS, 186 COMPARABLE MEASURES ARE USED IN THE ESG SCORING MORE THAN 450 DATA POINTS, RATIOS AND ANALYTICS

Refinitiv | ESG Scores

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Data process

With over 150 content research analysts trained to collect ESG data, we have one of the largest ESG content collection operations in the world. With local language expertise and operating from different locations across the globe, we process numerous publicly available information sources with the aim of providing up-to-date, objective and comprehensive coverage. There are over 450 ESG measures, which our analysts process manually for each company within the ESG universe, with each measure undergoing a careful process to standardize the information and guarantee it is comparable across the entire range of companies.

Annual reports

Company websites

NGO websites

Stock exchange filings

CSR reports

News sources

The database is updated on a continuous basis – aligned with corporate reporting patterns – and data is refreshed on products every week, including the recalculation of the ESG Scores. Updates could include a brand-new company being added to the database, the latest fiscal year update or the inclusion of new controversy events. In most cases, reported ESG data is updated once a year in line with companies’ own ESG disclosure. We refresh data more frequently in exceptional cases, usually when there is a significant change in the reporting or corporate structure during the year. ESG news and controversies are updated on a continuous basis, as and when such events occur and get picked up by global media.

150+ content research analysts trained to collect ESG data across the globe in Gdynia, Beijing, Bangalore, Mauritius and Manila

ESG database

Data quality is a key part of the collection process; that is why we use a combination of both algorithmic and human processes to make sure we achieve as close to 100% data quality as possible. Below is an overview of the various methods we use to achieve this goal.

Data entry/ pre-product

•

•

Around 400 built-in error check logics in the collection tool for various data points Error checks can be tailor-made for specific requirements

Postproduction

Around 300 automated quality check screeners run on ESG collection tool: • • • • • • • •

Relating to interrelated data points Negative screening Inconsistency or missing in quants and qualitative Scaling Variance within a year Raw data and comments section Sector-based checks (TRBC codes) Validating completeness of the prior year

Independent audits

Sample audits on a daily basis: • Detailed audits • Critical data point checks • Product audits Weekly reporting and root cause analysis: •

Feedback sessions with the production teams

Management reviews

•

Monthly quality – deep dives

•

Heatmap analysis with top areas for concerns Measures to address problematic topics and data points New system validation checks and screeners are constantly created based on new learning, insights and feedback to continuously improve the data quality

•

•

Refinitiv | ESG Scores

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Frequency of updates

Global coverage

All Refinitiv ESG scores, including controversies scores, are updated on a weekly basis.

The universe of companies for which ESG data is maintained and ESG scores are calculated consists of 10,000 companies globally. Regional breakdown is provided in the illustration below.

Definitive scores

Our coverage has evolved over time and is continuously expanding as we include more indices. We review the constituents of these indices on a quarterly basis, when additional companies are also included in our coverage. We have added Russell 3000 Index companies to the coverage. The illustration below shows a timeline of various indices’ inclusion in the ESG universe.

Scores will be marked as definitive for all historical years excluding the five most recent. For instance, if the most recent fiscal year is FY2020, then all historical scores prior to FY2016 will be considered definitive – but not those between FY2016 and FY2020. Definitive scores remain unchanged even if there are changes to the underlying data due to company restatements or data corrections.

Asia (excl. Japan) 1,250+

North America 3,500+

Europe 2,100+ Japan 450+

Africa and Middle East 300+

Oceania 600+

2013

S&P NZX 50

Expected coverage: China Singapore European small/mid cap Canada (TSX small-cap index)

2020

S&P ASX 300

2016

Bovespa

2012

2011

2009

MSCI Emerging Markets

2019

2008

S&P/TSX COMPOSITE

2018

DJ STOXX MSCI World

Russell 1000

Russell 2000* Russell 3000* IPC 35 IPSA 40 MSCI Europe MSCI Emerging MERVAL Small & Mid Markets – China COLCAP PERU GENERAL INDEX (179 new companies) Cap Index**

2017

SMI DAX CAC 40 FTSE 100 FTSE 250 S&P 500 NASDAQ 100

2003

Latin America 350+

*Market cap > 400MM USD ** 1.1k companies covered

Refinitiv | ESG Scores

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Scores overview

Scores structure

Refinitiv ESG scores reflect the underlying ESG data framework and are a transparent, data-driven assessment of companies’ relative ESG performance and capacity, integrating and accounting for industry materiality and company size biases. Refinitiv’s ESG scoring methodology follows a number of key calculation principles (set out below). An overall ESGC score is also calculated, which discounts the ESG score for news controversies which materially impact corporations. The underlying measures are granular enough to differentiate effectively between companies that have limited reporting and are not transparent or deliver minimal implementation and execution, versus companies that “walk the talk” and emerge as leaders in their respective industries or regions.

The model is fully automated, data-driven and transparent, which makes it free from subjectivity and hidden calculations or inputs.

ESG scores are calculated and available for all companies and historical fiscal periods in the ESG global coverage; that is, back to fiscal year 2002 for approximately 1,000 companies (mainly U.S. and European). The model comprises two overall ESG scores: 1. ESG score – measures the company’s ESG performance based on verifiable reported data in the public domain 2. ESG Combined (ESGC) score – overlays the ESG score with ESG controversies to provide a comprehensive evaluation of the company’s sustainability impact and conduct in of time

ESG score Refinitiv captures and calculates over 450 company-level ESG measures, of which a subset of 186 (details available in ESG Glossary, available on request) of the most comparable and material per industry power the overall company assessment and scoring process. The underlying measures are based on considerations around comparability, impact, data availability and industry relevance that varies across each industry group. These are grouped into 10 categories that reformulate the three pillar scores and the final ESG score, which is a reflection of the company’s ESG performance, commitment and effectiveness based on publicly reported information. The category scores are rolled up into three pillar scores – environmental, social and corporate governance. ESG pillar score is a relative sum of the category weights which vary per industry for the Environmental and Social categories. For Governance, the weights remain the same across all industries. The pillar weights are normalized to percentages ranging between 0 and 100 (for further details, refer to Appendix C on page 19 of this document).

The availability of the two overall scores and underlying category assessments allows users to adopt and apply the scoring that meets their requirements, mandates or investment criteria.

Category definitions are available in Appendix F.

Refinitiv | ESG Scores

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ESG Combined (ESGC) score ESGC scores provide a rounded and comprehensive scoring of a company’s ESG performance, based on the reported information pertaining to the ESG pillars, with the ESG controversies overlay captured from global media sources. The main objective of this score is to discount the ESG performance score based on negative media stories. It does this by incorporating the impact of significant, material ESG controversies in the overall ESGC score. When companies are involved in ESG controversies, the ESGC score is calculated as the weighted average of the ESG scores and ESG controversies score per fiscal period, with recent controversies reflected in the latest completed period. When companies are not involved in ESG controversies, the ESGC score is equal to the ESG Score.

ESG controversies category The ESG controversies score is calculated based on 23 ESG controversy topics. During the year, if a scandal occurs, the company involved is penalized and this affects their overall ESGC score and grading. The impact of the event may still be seen in the following year if there are new developments related to the negative event; e.g., lawsuits, ongoing legislation disputes or fines. All new media materials are captured as the controversy

progresses. The controversies score also addresses the market cap bias from which large cap companies suffer, as they attract more media attention than smaller cap companies.

Easily identify companies with strong ESG practices or exposure to ESG risks ESG scores are available on Refinitiv®: Refinitiv® Eikon® for seamless integration into users’ workflows. They are accessible via the ESG company views, the Screener app, Eikon for Office and Portfolio Analytics app. The ESG views show the scores in letter grades to show at a glance how companies are performing relative to their peers and where a company’s ESG weaknesses and strengths lie. ESG scores are available on Refinitiv® Eikon, Refinitiv® Workspace, Eikon’s Excel® add-in, Refinitiv® Datastream®, Refinitiv® Quantitative Analytics, the Refinitiv Data Platform Cloud API and the Bulk Service on Refinitiv® Data Platform for automated processing and integration of all ESG data and scores in users’ quant models and analytics tools. The scores, as well as all underlying ESG data and analytics, are also available via a cloud-based delivery solution on the Refinitiv Data Platform. The conversion from a percentile score to a letter grade is based on the logic in the table below.

Score range

Grade

Description

0.0...