Taking a diligent approach to ESG risk
RepRisk has harnessed both AI and human analysis to collect ESG data on more than 120,000 companies and infrastructure projects. Its Executive Vice President Alexandra Mihailescu Cichon explains the RepRisk approach
Environmental Finance: What’s the RepRisk approach to assessing ESG risks, and how does it differ from other companies in the ESG data business?
Alexandra Mihailescu Cichon: A lot of providers in this space come from the SRI industry. We do not. We come from credit risk management in investment banking – and this has fundamentally informed how our methodology and services have developed.
RepRisk started in 1998 as a risk consultancy focused on the financial sector. Our main product came out of a client request in 2006 for a list of 100 companies it should be careful about doing business with. We devised a systematic methodology to identify companies and projects, and also sectors and countries, linked to ESG risks and violations of international standards. We realised that this was a very interesting set of data – which gave us the idea to launch our flagship product, the ESG Risk Platform, an online searchable database of, to date, over 120,000 companies and 30,000 infrastructure projects.
We use public information only – what we call an ‘outside in’ perspective. So we don’t look at a company’s policies and processes, we look at its on-the-ground performance. Every day our research starts by screening more than 90,000 sources and stakeholders in 20 languages. These aren’t just the ‘Google-able’ sources – we specialise in going down to the regional and local level, which is where those 20 languages play a key role in capturing risk as early as possible.
EF: What’s the role of machine learning and AI in your research process?
AMC: There are traditional providers that tend to be strong at human analysis, and there are new providers who are fully tech-driven. RepRisk has leveraged both those elements from the beginning. This allows us to deliver not only timely but also relevant, actionable data – what we call ‘due diligence quality’ data.
We screen and pre-process over half-a-million pieces of news through our inhouse AI tool, every day. It does issues identification, sentiment analysis, entity extraction and natural language processing. While anyone can do AI, for powerful machine learning the machine has to be trained with tagged or labelled data – and RepRisk has a unique dataset: human-tagged and analysed data that spans more than 12 years.
EF: The company collects ESG risk data on infrastructure projects as well as companies. How – if at all – does the process differ?
AMC: We are looking for adverse information that links a company or a project to an ESG issue or hot topic, everything from palm oil, or human trafficking or corruption. We cover projects the same way we cover companies, with the same issues- and event-driven methodology. This approach allows us to cover any company in the world that has ESG risk exposure – public or private, large or small, in any sector or country. Essentially, we can cover any client portfolio, any investment universe, any asset class. We’re the only provider to cover projects and we have the largest dataset of private companies and of companies in emerging and frontier markets.
EF: How do your clients typically use the risk data you generate?
AMC: While we work with non-financial multinationals, UN agencies and some NGOs, our two big client segments are banking and insurance, and investment management. For the former, we’re used as a due diligence tool, for client onboarding, KYC [know-your-client] processes, client and transaction reviews, and reputational risk management. They use RepRisk to check for material ESG risks and violations of international standards linked to a particular client or project.
On the investment management side, we’re used by everyone from large asset managers to pension funds to private equity firms, to screen and monitor portfolios for ESG risks in a systematic way. Our coverage is very broad and our data is updated daily, allowing clients to flag pockets of ESG risk in their portfolios.
EF: You have recently announced that RepRisk is integrating the Sustainable Accounting Standards Board (SASB) materiality framework into your products. How will that work?
AMC: There are 28 ESG issues that make up our research scope, as well as the 57 hot topics we track. We’re mapping the SASB issues to our issues so clients can see our risk research through the SASB materiality lens. Clients will be able to see what the material issues are for SASB for each company, and then also get the data to see where the ESG risks are. As a next step, we’ll map our data to the 17 Sustainable Development Goals.
EF: How do you see customer demand evolving for ESG data products?
AMC: Clients are getting more sophisticated and are looking for alternative data sets and to complement or re-evaluate what they are currently doing. In general, ESG is more accepted and more mainstream. Before, it was about explaining why they need ESG integration, or helping them make the case internally. Now, they are figuring out how to do it, and our job is to explain how we can support them on that journey.
For more information, please see: www.reprisk.com
- Environmental data
- Social data
- Governance data
- ESG risk research
- Risk metrics
What data do you provide?
RepRisk is an ESG data science firm and a pioneer in ESG risk research and quantitative solutions. Leading organizations around the world rely on RepRisk as their key due diligence solution to prevent and mitigate ESG and business conduct risks related to their operations, business relationships, and investments. The RepRisk Platform is the world’s largest database of its kind, consisting of 120k+ public and private companies and 30k+ projects of all sizes, in every sector and market. The Platform offers quantitative data (risk metrics and analytics) and extensive qualitative research on companies and projects such as mines, pipelines, and factories, as well as sectors, countries, ESG issues, NGOs, and more. RepRisk Data Feeds are customized exports of our data.
Where and how do you source your data?
RepRisk takes an outside-in approach to assessing a company: Our research captures and analyzes information from media, stakeholders, and other public sources external to a company. This perspective helps assess whether a company’s policies and processes are translating into actual performance on the ground. Every day, RepRisk screens over 80,000 sources in 20 languages. It leverages a combination of artificial intelligence and human analysis in 20 languages to translate big data into curated and actionable research and metrics, using a proprietary, rules-based methodology. RepRisk exclusively focuses on risks to capture adverse information that can have a reputational, compliance, and financial impact on a company.
Who are the data users?
RepRisk data is primarily used by the financial industry: Banks use RepRisk to integrate ESG risks into due diligence processes such as client and transaction reviews, KYC, and client onboarding processes. They can check compliance with internal policies and international standards, such as the Equator Principles, the UN Global Compact, and the UN Guiding Principles for Human Rights. Similarly, insurance providers including export credit agencies integrate RepRisk’s ESG risk data in underwriting processes. RepRisk also serves a broad range of investment management clients as a daily-updated risk overlay for ESG integration activities, investment analyses, and portfolio monitoring.
RepRisk data is also being used by multinational corporates to identify and monitor ESG and business conduct risks related to their suppliers, distributors, and business partners, as well as for peer benchmarking, reputational risk management, and stakeholder management.
Moreover, RepRisk’s services are used by Financial Data Providers and other institutions such as research and advisory firms.
What is the cost for your data offering?
RepRisk’s pricing model is based on an annual subscription model. For the RepRisk Platform, the pricing is based on the number of users, e.g. packages of 5, 10, 20, 50 users. For the RepRisk Data Feed, the pricing is based on the number of teams who access the data. RepRisk also offers in-depth reports on one company as well as company benchmarking reports in PDF format, which are directly available via the RepRisk Website.
What are the key attributes that differentiates the data you offer?
- RepRisk leverages a unique combination of artificial intelligence/machine learning with human analysis for its research – allowing RepRisk to deliver curated, relevant, actionable data (“due diligence grade” data), with daily updates and a history of +12 years (since January 2007)
- RepRisk’s proprietary research methodology offers the most comprehensive coverage in the market, with +120,000 companies in the RepRisk Platform. Largest coverage available of private companies, and companies in emerging and frontier markets, and the only provider to cover projects (e.g. mines, pipelines, etc.)
- Exclusive focus on ESG risks that can have a compliance, reputational or financial impact on a company.
- Outside-in approach to assessing a company: RepRisk research captures and analyzes information from media, stakeholders, and other public sources external to a company. This perspective helps assess whether a company’s policies and processes are translating into actual performance on the ground.
Leverage @RepRisk’s unique combination of machine learning and human analysis in 20 languages to translate big data into curated and actionable research and metrics for your risk management and compliance processes. For a trial of the largest ESG due diligence database, visit www.reprisk.com