New Corporate “E” and “S” QualityScores For 1,500 Companies Are In Addition to the Core “G” Score for Corporate Governance For Investors / Fiduciaries…
More “big news” for both corporate sustainability officers and sustainable investment professionals at the start of 2018: Institutional Shareholder Services (ISS), which began operations in the mid-1980s with sharp focus on corporate governance issues, provides data, ratings and perspectives to a wide range of influential institutional investors.
ISS advice can influence the conversation of fiduciaries when engaging with company managements and influence institutional investors’ proxy voting.
One of the main products/services of ISS is providing the “Core Governance QualityScore,” which are “…data-driven screening solution with insights for investing institutions to review a company’s quality factors and assess risks.”
Says ISS: “Scores indicate a relative quality and are supported by factor-level data…with historical data and scores providing greater context and trending analysis to understand a company’s approach to governance over time…”
The tools used include numeric, decile-based scoring, which gives a company’s governance risk relative to their index or region.
The big news today: In addition to the core “G” scores, ISS has made public the first “S” and “E” QualityScores for 1,500 companies in six industries:
- Capital Goods
- Automobiles & Components
- Consumer Durables & Apparel
These new “E” and “S” QualityScores meet the demand of ISS’s institutional investor clients, seeking high-quality data and analytics covering environment and social topics.
Explains COO Stephen Harvey
“Investment professionals who increasing rely on extra-financial data and research for investment decision-making and portfolio risk mitigation will benefit when screening for companies where risks in operations, business and supply chains are often latent.”
There are 380 unique E and S factors considered in the approach, with 240 of these applying to each industry group.
Scoring follows the ISS governance scoring model:
- Each company is scored within their industry.
- The E and S “governance” disclosure risk is measured, overall and in eight categories.
For example, in the “E” category there are these considerations:
- Management of Environmental Risks and Opportunities.
- Carbon and Climate.
- Natural Resources.
- Waste & Toxicity.
Under the “S” category:
- Human Rights.
- Labor, Health and Safety.
- Stakeholder and Society.
- Product Safety, Quality and Brand (all of these these for social-related governance and disclosure).
Note that according to ISS, European companies generally score far better on environmental factors than their peers in the Americas and Australasia.
Starting in February, the E&S scoring will be included in the ISS benchmark proxy policy research reports – these can broadly affect the outcomes in corporate proxy voting in 2018.
ISS stresses that the focus is on highest-quality available data, materiality, and providing actionable company scores for investors.
- The industry “leaders and laggards” will be identified in the first six industries as the “best-in-class” companies are identified.
- Then moving further into 2018 a total of 5,000 companies will be assigned an E and S QualityScore in addition to the traditional core G score.
The ISS “E” and “S” scoring methodology is based on guiding frameworks and standards, including the Global Reporting Initiative (GRI), Sustainable Accounting Standards Board (SASB) and the Financial Stability Board’s “Task Force on Climate-related Financial Disclosures” (the “TCFD”).
If you are not familiar with the important Task Force recommendations for public company disclosure, there is information in the “G&A Institute’s To the Point!” platform for you; link: https://ga-institute.com/to-the-point/climate-change-related-disclosure-the-financial-stability-boards-task-force-on-climate-related-financial-disclosures-could-affect-your-companys-important-financial-disclosure-filings-and-yo/
ISS is also considering the Sustainable Development Goals (SDGs) for the E and S scoring, looking for aligned business models, services and products. Examples are:
- Goal 6 – Clean Water and Sanitation
- Goal 7 – Affordable and Clean Energy
- Goal 12 – Responsible Consumption and Production
- Goal 13 – Climate Action
- Goal 14 – Life Below Water Protection (the oceans and seas)
- Goal 15 – Life on Land – Protection
The summaries on the ISS platform for the E and S scoring include key corporate disclosures, key omissions, and an overview of disclosure and reporting by companies.
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Keep in mind that the challenge of achieving and maintaining higher G, E and S QualityScores can be a moving target, as industry and investment peer companies up their game and ISS further evolves its methodology.
For example, in October 2017 ISS changed the methodology for the long-standing corporate governance scoring. With new tools, investors can compare 21 key factors across global markets to explore issues such as:
- The number of financial experts serving on the board audit committee.
- Unequal voting rights (investors really dislike this practice, while Silicon Valley entrepreneurs love it).
- Independence of boards is a critical issue.
Evaluation of board candidates is a critical factor to be researched using the tools.
These types of incremental expansion of “what” is looked at and “how” it is evaluated can be expected to influence the scoring of E and S for companies. This enables investors to compare all companies covered by QualityScore across a number of key attributes to identify risk and opportunity, the Company points out.
The company was founded in 1985 and serves institutional investor clients and public corporations. Investor clients include asset owners, asset managers, hedge funds, and asset service providers.
Services include governance research and recommendations; proxy voting and distribution solutions; securities class action claims management; governance data and modeling tools.
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G&A Institute has a comprehensive, fine-tuned proprietary approach to assist corporate clients in understanding and responding to third-party inquiries in this new “mosaic” disclosure and reporting environment.
We help companies develop effective best practices in their sustainability disclosure and reporting.
There is no “one best way” to disclose and report by cherry-picking one or two information requests or selection of a single framework (for reporting) if a company wants to excel in building a public, world-class sustainability profile that signals “leadership.”
For information, connect with EVP Louis Coppola at: email@example.com
ESG / Sustainability Disclosure and Reporting
G&A Institute research over recent years showed the sustainability reporting activities of the companies in the S&P 500® Index rising from about 20% in 2011 reporting to more than 80% five years later.
The G&A team is today assembling the results of 2017 reporting and will distribute a Flash Report shortly.
G&A is the data partner for the GRI in the United States, United Kingdom and Republic of Ireland. Each year our team analyzes and databases key data from more than 1,500 global reports.
Our client services include specific tools, resources and strategic advice and support for companies preparing sustainability reports, for first-time reporter up to multiple-times corporate reporters.
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There is more information for you about ISS and the QualityScores in our “G&A Institute’s To the Point” brief: https://ga-institute.com/to-the-point/the-universe-of-esg-rankers-serving-institutional-investor-clients-expands-to-include-a-significant-player-institutional-shareholder-services-iss/
And information on FSB Task Force’s TCFD (recommendations) for Climate-related Disclosure is also a To the Point! brief — link: https://ga-institute.com/to-the-point/the-universe-of-esg-rankers-serving-institutional-investor-clients-expands-to-include-a-significant-player-institutional-shareholder-services-iss/
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