Recognising an ever growing demand for detailed and comprehensive environmental, social and governance (ESG) information, Environmental Finance spoke to Moody's ESG Solutions' Julia Haake, Managing Director of Market Strategies and Angela Brown, Senior Vice President of Product Strategy about the breadth and depth of its ESG data, scores and assessments
Environmental Finance: What have been the defining trends for the ESG data sector? What's next for Moody's and the industry, more broadly?
Julia Haake: With investors recognizing that effective management of ESG risks and opportunities is no longer a "nice-to-have", demand for ESG data is only increasing. Indeed, data provision isn't only increasing for reactive activities such as regulatory responses and international standard alignment.
At Moody's ESG Solutions, which specializes in providing ESG data, assessments and other solutions, we are seeing that market participants are requesting ESG and climate data to create innovative products – as well as increase their understanding of risks within their portfolios – to better inform investment decisions.
It isn't only about data quantity – what market participants mean by "high quality" data and, crucially, insight, is also a moving goalpost. As a data provider, we are increasingly recognizing the need for deep insight. This means not only covering an increasing number of company data points, but also providing analysis both on how a company impacts the environment and society, and how ESG factors impact the financial stability of a company.
What encompasses our ESG and climate data proposition is "comprehensive coverage". For us, this means delivering an expanding universe of data, scores and assessments, driven by rigorous and transparent methodologies – all available through easy-to-use and powerful platforms. By doing this, we believe we have the right tools to best engage with our clients to build a more sustainable, resilient future.
EF: How is Moody's responding to the challenges market participants currently face and what sets apart its ESG data offering, in your view?
Angela Brown: What I believe is compelling about the Moody's proposition is our commitment to creating a comprehensive suite of solutions that provides insight for every market participant, with the capacity to deliver granular insight on the entities most prominently featured in investor portfolios, as well as some degree of practical insight on any company worldwide. In short, we are focused on "breadth" and "depth", in equal measure.
When it comes to breadth, our first-of-its-kind ESG Score Predictor can generate modelled ESG scores on any company, regardless of size, location, or public/private status, with scores already available for 300 million companies worldwide.
Depth, in our view, comes in the form of Moody's ESG Solutions' ESG Assessments. To avoid a "black box" approach, we also make available the raw datapoints, which can be integrated into our clients' internal models and processes. These deeper insights then inform a variety of positive and negative screening tools, and specialized datasets designed to ease regulatory responses and power thematic investment strategies.
As for climate, we provide forward-looking climate data, scenario generators, and climate-adjusted probability of default models – enabling companies to identify and quantify both physical and transition-related climate risks.
EF: How does Moody's ESG Solutions approach assessments of a company's ESG credentials?
JH: For our ESG Assessments, we apply sector-specific frameworks that consider a company's policies and practices relevant to 30 ESG categories, as well as the company's responses to ESG controversies. What's more, the double materiality lens underpinning our ESG Assessments goes beyond the traditional entity-specific risk model.
EF: Why is double materiality such an important area of focus for you?
JH: It's our view that limiting ESG Assessments to just what's financially material fails to provide financial market participants with the level of detail they require to make effective decisions. While a narrower view of risk can help investors to assess potential near-term financial impacts of ESG factors, this approach discounts valuable drivers of sustainable value creation and, indeed, other stakeholder risks that contribute to a well-rounded view of ESG.
By applying a double materiality lens, investors can interrogate a wider set of ESG components that contribute to, or degrade, many forms of value. For this reason, we believe that it is only through assessments combining consideration of both stakeholder and financially material issues that investors can gain a true understanding of ESG exposure.
EF: What has the launch of the Moody's ESG360™ platform meant for your approach to client delivery?
AB: Moody's ESG360™ answers the calls for a trusted view on ESG and climate issues, putting decision-relevant data, scores and assessments at investors' fingertips. In short, the platform offers our clients a centralized, easy-to-use hub through which to view our analysis of their portfolios, and arrive at a concrete understanding of the risks and opportunities uncovered by our data. Over the coming months, new datasets and features will be added regularly, allowing us to further consolidate our broad and varied ESG and climate offering.