The ESG assessment space has occasionally been referred to as the Wild West of finance for the rapidity and seemingly uncoordinated nature of its growth.
Rating and scoring services have come under particular scrutiny because of the widely different results each offers for the same entity. Regulators, particularly in the European Union and the United Kingdom, are looking to bring order to the sector, arguing that without comparable benchmarks investors will find it difficult to efficiently allocate their capital.
FinTech company Broadridge, however, has already entered the fray.
Late last year the New York-based data consulting firm unveiled its ESG Performance Dashboard, providing issuing corporates with an aggregate of their various ESG ratings. In what Joseph Vicari, Broadridge Managing Director and ESG Lead, calls a “rating of ratings” product, the dashboard seeks to make sense of what can sometimes seem to be a confusing ESG ratings sector.
“We’ve taken a wisdom of the crowd approach,” Vicari told ESG Insight. “Sometimes ratings are in conflict with each other; you can get a reasonable rating from one company, and maybe a not so good one from elsewhere, but you really don’t understand what the difference is, it’s sort of a black hole as to how they create those ratings.”
Consensus View
Broadridge’s entree into the ESG data sector offers corporates a 1-100 score on the consensus view of them from scores of ratings offered by the analytics firms large and small, such as MSCI and Sustainalytics, as well as proprietary scores generated in-house by asset managers and banks.
These assessments are all gathered by partner company CSR Hub, a unit of data provider FactSet, which Vicari said had the presence of mind many years before the ESG growth explosion to secure access to ratings and scores from other companies.
Vicari insists Broadridge isn’t adding yet another set of ratings to the already bulging pool of assessments.
“It’s a score of scores or a rating of ratings, which is different to what ratings providers are doing – they take underlying disclosure data from companies and actually do that analysis to come up with their their rating on how well those companies are performing,” he said.
Broadridge’s data, he says, is the actual scores of the ratings firms.
“The methodology that we have normalises the ratings among all those entities that are out there and takes out the noise and looks for how well the ratings correlate between each other.”
Lack of Access
The genesis of the product is found within Broadridge’s recognition that issuing companies often have no access to scores on themselves. Lacking the resources of banks and financial institutions with in-house scoring operations, or the expertise of dedicated rating companies, they often have no way to gauge their own ESG performance.
“We created and launched the dashboard and designed it to level the playing field between companies and institutional investors,” Vicari said.
The dashboard is offered free to the 800-plus companies it covers, giving them a snapshot of their ESG performance relative to their peers, other industries and jurisdiction. The complimentary service will provide a two-year performance view.
For an annual fee, companies can interrogate their performance more deeply based on four top-line categories: Environmental, Social-Community, Social-Employee and Governance. Each has up to another 12 sub-categories that will give granular information on such topics as energy and resource use as well as environmental policy. That service gives five-year visibility.
Other Factors
While Vicari said Broadridge hopes to bring clarity to the often confusing array of ESG ratings, he believes such scores need to be considered alongside other factors, including a jurisdiction’s regulatory setup.
The disparity in oversight across continents can have a huge impact on the relative performance of companies. For instance, many American companies may score poorly relative to their overseas peers on metrics such as greenhouse gas emissions disclosure. But without a regulatory obligations in the US to report such information, few companies will volunteer it.
“That data is hard to get – it’s a lot of work,” said Vicari. “But because it’s not there doesn’t mean these companies are not doing well or doing things – there just aren’t the regs there requiring it.”
The dashboard gives companies a signpost to the direction their ESG journey is taking, and that offers Broadridge further monetising opportunities. It provides consultancy services to help businesses identify where they can improve their ratings. Just a couple of months since its launch, the dashboard is already driving customers to that part of the business.
Its success is prompting Broadridge to look at other ESG-related products – with a rating solution being one possibility, Vicari said.
“We haven’t decided on that, but I will say that the dashboard as it exists today is our first foray into ESG data services and there will be more to come,” he said. “Whether it’s an actual rating or not, is probably too soon for us to say.”
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