An eye on a global ESG standard
Its acquisition by Moody’s promises to take Vigeo Eiris to the next level, says Emilie Béral, the company’s COO
Environmental Finance: What’s your approach to corporate ESG data collection and analysis?
Emilie Béral: Four principles guide our approach at Vigeo Eiris: objectivity, traceability, engagement and third-party verification.
Regarding objectivity, the data we collect is from multiple sources, not only from companies but also from their stakeholders, including media and groups such as global trade unions or NGOs like Transparency International. This ensures the analysis we provide is as objective and as independent as possible.
Second, traceability: we never include untraceable information and we maintain the ability to provide the source of all the information that goes into our analysis. We can always explain why we say something about a company.
Our third principle is engagement: we recently published a commitment to companies to ensure professional and efficient engagement, as they provide us with key information. The exchanges we have with companies are transparent; issuers are keen to understand the methodologies used to rate them. In 2005 we launched our VE-Connect platform to allow companies to see the whole rating process, to visualise and challenge data, and to engage with the analyst. This approach enables collaborative exchange with the agency.
Finally, to guarantee the quality of what we do, we have gone through the process of being externally certified: we received the ISO 9001 certificate, becoming the first agency to do so. It allows us to demonstrate that we’re eager to enter into a process of continuous improvement.
EF: How would you say you are differentiated from your competitors?
EB: First, we have been around since 2002 and, from the start, we have had a stable ESG rating methodology. When ISO 26000 was issued [in 2010], our own standard was fully compliant; this means we have a set of historical data that is unique in the marketplace. When new trends emerge – such as the Just Transition concept – we already have the data. For over 15 years, we have been looking at relevant factors, such as the way companies manage reorganisation, how they can attract and retain appropriate competencies, and how they are adapting their strategies to climate change.
Our framework involves a managerial analysis along three axes: first, looking at the engagement of the company; second, implementation, or whether companies apply what they say; and, finally, the outcomes, the results obtained.
This framework allows us to combine static analysis – such as a company’s carbon footprint – with more dynamic assessments, such as how companies are transitioning to a low-carbon world. By combining static and dynamic analysis, our clients can create investment strategies that can differentiate them in the marketplace.
EF: To what extent can ESG indicators be used to predict financial performance?
EB: Our goal is identifying the sustainability risks faced by issuers. We provide our clients with information on ESG performance and the capacity of issuers to mitigate risks to four asset classes: their reputation, human capital, legal security, and operational efficiency.
The data we deliver to our clients enables them to identify ESG weaknesses that could lead to these assets being downgraded, which in turn might have an impact on financial performance. To provide concrete examples: our research identified weaknesses in the ESG profiles of issuers that subsequently came under considerable market scrutiny – such as Facebook, Tepco and Volkswagen.
Our ESG research complements financial analysis by providing financial experts with a comprehensive view of an issuer and enabling them to make informed decisions on ESG issues that affect issuers’ intangible assets and ultimately their financial performance.
EF: What does your acquisition by Moody’s mean for your ESG data products?
EB: This is the combination of two leaders in the marketplace, with different objectives. Moody’s assesses creditworthiness or solvency risk, while we assess sustainability risk. What this shows is that ESG factors are now mainstream, and they have the capacity to inform credit analysis; Moody’s has been integrating ESG factors for years. The objective of this alliance is to create a worldwide ESG standard and create a larger footprint for Vigeo Eiris. We remain independent. This includes our scientific committee, which exists to ensure our methodology is independent.
EF: Where do you anticipate most growth in terms of ESG data products?
EB: We’re seeing a number of different trends – growing interest from private equity, from investors in small and mid-cap companies, and the emergence of new topics and market needs, such as around the Just Transition concept. The passive index market is also booming, and is set to continue, as it enables investment managers to quickly create products that are impactful. Growth will come from the capacity of agencies like us to provide solutions quickly, that allow our clients to find innovative ways of tackling the sustainability issues that we face.
For more information, see www.vigeo-eiris.com
- Environmental data
- Social data
- Governance data
What data do you provide?
- Our overall SDG assessment of companies is developed through a combined analysis of both the products that companies develop and the behaviour of companies on ESG issues.
- The SDG Assessment dataset provides 38 data-points per company:
- 10 numerical assessments (scores on a scale of 0-100).
- 28 qualitative assessments (qualifications on a five-point scale).
- Each company is qualified in terms of its overall contribution to the SDGs (on a five-point scale from highly positive to highly adverse).
- Each company is also qualified on its contribution to eight specific SDG themes. These have been developed by isolating the requirements for corporate action within the SDG framework. The themes are; Business Ethics, Governance, Social Welfare, Human Capital, Natural Capital. Healthy Lives, Development Tools, Climate Change (qualified on a 5-point scale).
- In addition, the more granular underlying data behind each component of the assessment can also be provided to those clients who want to drill down further.
- We can provide a Portfolio Analysis to investors interested in understanding their portfolios’ contribution to and alignment with the Sustainable Development Goals.
- Research is delivered monthly via our extranet platform (DataLab).
- Our SDG Assessment research covers a universe of 4800+ companies from Europe, North America, Asia Pacific and Emerging Market regions.
Where and how do you source your data?
Vigeo Eiris collects and qualifies information published by and about the companies that it researches. The use of confidential information is prohibited. We use information from corporate reporting such as Annual Reports, Sustainability Reports, 10Ks etc. We also collect information directly from companies via our proprietary VE Connect© platform. This platform provides them with transparent access to their research frameworks and allows them to integrate responses in a precise fashion. Information provided through this platform is not used if it is labelled as confidential. We also use information from public stakeholder sources (Business and Human Rights Resource Centre, OECD Contact Point etc) including information that is provided to use through the partnership agreements that we have set up with specific international Trade Unions. Vigeo Eiris also uses the FACTIVA resource which provides research analysts with press material from over 30,000 online press sources.
Who are the data users?
The data is used by our global client base of investors for a range of purposes that include; portfolio analysis and reporting, portfolio alignment, thematic index and fund development, best in class and exclusion strategy development, identification of investment opportunities aligned with the SDGs. The data can also be used by academic institutions for research and analysis purposes.
What is the cost for your data offering?
From €7.5k upwards dependent upon the size of AUM of the client, and the depth, geographic breadth and thematic range of research data and coverage subscribed to.
What are the key attributes that differentiates the data you offer?
- Product and Behaviour Lens: Our SDG Assessment takes an integrated analysis of both the products developed by companies as well as their behaviours in order to build a holistic assessment on their contribution to the Sustainable Development Goals. Firstly, we analyse whether companies are Acting Responsibly. This is done through an assessment examining the policies, systems and results of companies across material ESG issues. Secondly, we assess whether they are Mitigating and Remediating Harm. This is done through an assessment of any controversies faced by the company as well understanding whether they are involved in controversial activities that are fundamentally against the Sustainable Development Goals (Tobacco, Armament etc). Thirdly we assess whether or not companies are developing Sustainable Opportunities. This is done through an assessment of the products and services that they are developing.
- Transparency of Methodology: Data requires definition to be meaningful. All Vigeo Eiris research lines are accompanied by detailed Product Guides that outline the methodology and processes behind the development of the dataset. A Product Guide is available for the SDG Assessment product as well as all of the underlying products that help feed this assessment.
- Quality Assured Research: In 2019, Vigeo Eiris became the first ESG rating agency to be awarded the ISO9001 certification for its methods and processes.
#investors; want to report on your portfolio’s contribution to achieving the @UN #SDGs? Talk to @VigeoEiris. Our analysis benchmarks 4800+ companies on both their products & behaviour. #becauseESGmatters https://bit.ly/2VYDtob