Interview by Hank Boerner – Chairman, G&A Institute
Thomson Reuters is a global media and information services company, and one of the largest providers of capital markets information. In 2009, T-R acquired ASSET4, a longtime ESG performance information service for investors. The ASSET4 methodology is being used for a new family of ESG benchmarks for investors and companies – the Thomson Reuters TR CR indices (TRCRI). The managers of the indices is S Network Global Indexes LC, providers of indexes that measure the performance of discrete segments of the global economy. We spoke with Herbert Blank, at S Network Global Indexes regarding the new TRCRI
G&A Institute Question: Tell us about the new TR CR Indexes and Ratings from Thomson Reuters in partnership with S-Network Global Indexes LLC. What are the first products coming to market – and what need do they fill?
Answer – Herb Blank: The Thomson Reuters Corporate Responsibility Indices (TRCRI) are a suite of benchmarks designed to measure the performance of companies with superior ratings for Environmental, Social and Governance practices (ESG). Historical data and constituents are available on a rolling basis beginning January 1, 2007.
The Thomson Reuters Corporate Responsibility Ratings (TRCRR) apply extensive quantitative modeling to more than 500 data elements to score more than 4600 companies from 0 to 100 on Environmental, Social, Corporate Governance, and ESG Performance. The indices and ratings were launched in April 2013. They democratize ESG Ratings and indices by creating transparent and publicly available methodological standards that can be used for comparisons between global regions and industry groups.
G&A Institute: What are the key characteristics of the rating process?
Herb Blank: The characteristics of the ratings process are:
- Baseline Simplicity — Just one number between 0 and 100 on an approximated normal distribution characterizes performance on each dimension.
- Comparability and Consistency — Data framework is identical for all companies within each industry and region allowing for the generation of comparable statistics over time. Scoring and benchmarking relative to disclosure practices in industry and by region makes every score comparable in “E”, “S”, “G”, and “ESG.”
- Deterministic — Ratings are completely formula-driven and derived from publicly-available data.
- Emphasis on Materiality — Analytical frameworks emphasize criteria most material to ESG performance and risk in each industry by region.
- Transparency — Methodology including weights, dynamic scaling, peer groups, and adjustments 100% disclosed and available on spreadsheets via website.
G&A Institute: When will the indices and ratings be available for users?
Herb Blank: Four indices apiece for the US Large Cap stock market and global ex-US developed stock markets have been available since April 2013. Four stock indices for Emerging Markets are under development with an expected release date of April 1, 2014. We also expect to be releasing fixed-income indices for TRCRI sometime during the second half of 2014.
The ratings are available and being utilized now through Thomson Reuters Enterprise Solutions. The big change in the early part of 2014 is that Registered Investment Advisers (RIA’s), Corporate Users, and individuals will have the ability to purchase to ratings data directly from www.trcri.com via all major credit cards at surprisingly affordable prices.
G&A Institute: How do you see asset managers, owners, and consultants using the products?
Herb Blank: The fact that the ratings have normal distribution curve properties facilitate their usage by asset managers as screening tools or as additional variables for existing portfolio universe scoring systems. Since 500 data elements are engineered to create just four ratings per company, pricing is substantially less that the norm for existing ESG database products. The news is even better for asset owners and their consultants who use the data for benchmarking, universe screening, and research; those who qualify will receive complimentary subscriptions to the ratings and the indices.
Asset managers and financial markets consultants can compare companies and portfolios against peer groups in these areas of corporate responsibility. Companies that are highly-rated in ESG metrics have been intuitively characterized as top performing companies. Now the TR ratings and indices present quantitative evidence to verify this assumption.
G&A Institute: How will corporate managers be able to use the products?
Herb Blank: Corporate managers will find it easy to compare themselves with their peers, both domestic and foreign. Beyond that, the transparency of the ratings facilitates the ability of expert consultants such as G & A Institute to coach such clients on what things they could do to improve their ratings relative to their peers. Also, corporate executives and financial leaders can highlight their company’s progress in ESG issues in quantitative terms that financial analysts must consider to be material. Strong performance in the ratings will give investors an inspective look into the companies.
G&A Question: Can you fill us in on the background of the partnership with Thomson Reuters?
Herb Blank: Prior to launching the TRCRI and TRCRR, Thomson Reuters and S-Network have collaborated on the CRB Equity Indexes and have explored other joint ventures. S-Network Global Indexes’ historic expertise is as an architect, developer, and provider of specialty indices that can easily be attached to investment management products such as exchange-traded funds (ETFs) and separately managed accounts. A key impetus for the TRCRI venture was to create investible ESG indices utilizing the vast corporate responsibility data collected and analyzed by Thomson Reuters Asset4. In terms of the partnership, the TRCRI are compiled and published by S-Network Global Indexes and calculated using T-R data.