Our ESG research methodology
ESG intelligence offers a comprehensive coverage of extra-financial risk exposure of companies that we cover. Our ESG research methodology goes beyond the conventional ‘check-box approach’ as we try to catch the strategic areas which the companies might be overlooking. In other words, we try to differentiate companies that are indulged in greenwashing, or are just meeting compliance, from those that are adopting and executing truly sustainable strategies. This methodology allows us to separate the companies focused on short-term financial glory, from those that are steadily moving towards creating sustainable businesses.
In order to provide a comprehensive assessment of risk exposure of a particular company, we assess it on five broad risk areas that cover more than 300 risk indicators.
The ESG research process:
- Capture information reported by the company on more than 300 risk indicators. These indicators fall into five broad categories of extra financial risks that we assess – environmental, social responsibility, ethics and governance, macroeconomic and geopolitical and emerging technologies.
- Analyze the reported information based on our proprietary assessment framework. This includes evaluating the strategies, policies, initiatives, and data reported by the company.
- Media analysis is conducted through extensive secondary research on media reports related to the company in the past couple of years. The objective is to uncover negative news such as any fraud, involvement in litigations, pending investigations, stakeholders dissent etc. Based on the severity, and the company’s efforts towards resolving the issue, negative scores are given on related indicators.
- Peer analysis and calibration helps us identify the prevailing best practices among the peer group and makes our analysis more relevant. For this, we create a close peer group of companies, which are evaluated simultaneously. The scores of each company on all indicator are calibrated based on the performance of the peer-group.
- Gap analysis is done once we get the calibrated scores. We analyse the implications of risk areas identified for a company, and suggest steps that the company can take to improve its performance. This process also throws up some unanswered questions about the company, which we share with our clients to help them engage the company.
- Expert opinion: After the comprehensive analysis of all the companies in a peer group, we also take the opinion of experts from our network in an effort to better understand the implications of the risks for the industry.
Ethics & Governance
Under this theme we try to assess the company on topics such as corporate governance framework; information security, business continuity, and IP protection frameworks; board structure, independence, and governance; information disclosure practices, shareholding structure and voting rights; among others.
Under this theme we try to assess the company’s ability to manage some of its most important stakeholders – employees, suppliers, customers, and community. We evaluate the company’s stakeholder engagement framework, policies, initiatives, and data reported on relevant indicators to analyse the gaps in their overall social strategy and performance.
Last two decades have seen many large and established businesses disrupted, because they failed to acknowledge the emerging technologies. We are sure that next two decades will not be different. We therefore track all emerging technologies that can disrupt the companies we assess. From renewable energy to electric cars; from big data to cloud computing; and from 3D printing to robotic process automation; we track them all.
Financial health of a company is the most important and reliable barometer to gauge its medium-term sustainability. We conduct in depth financial assessments of the companies under our coverage to look through the numbers and the commentary provided by the management. We decide the assessment indicators and their weights for a group of companies, based on the current market situations and other factors at play.
Under this category we assess, the company’s environmental performance by evaluating its environmental strategy, policy, initiatives and analysing the reported KPI data to establish if the company is working to improve its performance. We also analyse the company’s environmental across its value chain, and check if the company is doing enough to address the impact of its supply chain and products.