Refinitiv ESG1 scores now more data driven than ever, addressing three main industry challenges of Materiality, Transparency Stimulation, Size Bias, allowing investors and companies more objective industry peer-comparisons.
Building on its commitment to connect and empower the global financial community through data and analytics, Refinitiv today announced key enhancements to its ESG scoring methodology. Refinitiv ESG scores are now more data driven than ever, accounting for industry-based materiality weighting of metrics, with minimal company size and transparency biases, allowing investors and companies to more objectively conduct industry peer-comparisons.
Refinitiv ESG scores are designed to transparently and objectively measure a company’s relative ESG performance, commitment and effectiveness across 10 main themes (emissions, environmental product innovation, diversity and inclusion, human rights, shareholders, etc.) based on publicly-reported data. The enhanced ESG scores are a uniquely effective way to assess materiality across industries, while serving as an objective, impartial and trusted assessment of the importance of each ESG theme to different industries.
Refinitiv ESG scoring methodology enhancements were made in consultation with market participants (sustainable finance professionals at institutional investment firms, academics, regulators, and investment banks) through discussions about sustainable investing and what is required to encourage and accurately reflect the integration of ESG data into investment strategies. Following a series of industry roundtables, along with 4-years of market feedback, Refinitiv ESG scoring methodology enhancements were designed to ensure they are keeping up with rapid market changes and developments in the sustainable investing industry.
The three key enhancements to the Refinitiv ESG scoring methodology are:
Materiality Matrix: Refinitiv enhanced ESG scores further takes into account that not all metrics have the same importance to every industry. The Refinitiv ESG magnitude matrix is developed as a proprietary model and is applied at the category level. Importantly, the magnitude values are automatically and dynamically adjusted as ESG corporate disclosure evolves and matures.
For Boolean metrics, levels of data disclosure can act as a proxy for investor driven pressure on company reporting. Levels of disclosure inform the relative ‘weight’ of data points for each industry. For measurable numeric metrics, we use our data to determine which sectors contribute most and the proportion of the contribution to the total is used as a proxy for the level of materiality for that sector. For example, the more a given sector contributes to carbon emissions, the more material are carbon emissions data points to companies in that sector. Refinitiv proprietary “magnitude matrix” assesses materiality, showing the weight, from 1 to 10, of data points for each industry.
Transparency / Investment grade scores : The previous ESG scoring methodology allocated a score of 0.5 to companies which didn’t report on metrics, essentially giving them the ‘benefit of the doubt’. However, as this may disincentivize companies to report on their ESG performance, the enhanced methodology assigns a score of zero to companies who don’t report on metrics relevant to the industry. This new approach encourages company disclosure and transparency.
Company size bias: When calculating controversies scores for companies we take into account company size. Larger market cap companies are reported on more in the news than smaller companies due to their scale of operations. We have introduced a market cap factor which puts more weight on small companies than large companies.
Refinitiv ESG data is designed to help investors make sound, sustainable investment decisions, our ESG data covers nearly 70% of global market cap and over 400 metrics. For more information about Refinitiv ESG data, visit https://www.refinitiv.com/en/financial-data/company-data/esg-research-data
1The 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)