Responsible investing requires a tool to measure the performance of a company’s business operations and governance as it relates to financially material ESG factors facing the company’s industry. We’ve designed a tool to do just that. We call it R-Factor™
Data points mapped to commonly accepted transparent materiality frameworks
Data providers powering the score: Sustainalytics, ISS-Oekom, Vigeo-EIRIS, and ISS-Governance
At State Street Global Advisors, we believe that the consideration of financially material ESG factors in the investment process is an integral part of honoring our fiduciary duty. We believe doing so is our responsibility, and so we've built the Responsibility-Factor, or "R-Factor™," score.
R-Factor™ is an ESG scoring system that draws on multiple data sources and leverages widely accepted, transparent materiality frameworks to generate a unique ESG score for listed companies.
Quality data about companies’ ESG practices is critical for effective investment analysis, but the lack of standardization and transparency in ESG reporting and scoring presents major challenges for investors. R-Factor™ was built to solve for the data quality problem and to remove opaqueness around ESG materiality in the scoring process.
In doing so, R-Factor™ is designed to build more sustainable capital markets.
R-Factor™ is designed around four core pillars:
For investors to be able to fully trust and integrate ESG scoring into their investment process, they must have confidence that the ESG considerations are material and have a demonstrated link to sustainable long-term value creation. R-Factor™ draws on frameworks that are widely supported by other investors, thereby sending a unified message to companies and investors about which ESG factors are material to a company’s performance and are therefore important to disclose.
We selected the Sustainability Accounting Standards Board (SASB) materiality map as well as national and/or investor-developed corporate governance codes, because they are transparent frameworks supported by large numbers of investors.
R-Factor™ is powered by the raw metrics from four different data providers. This approach increases the overall coverage of our data set, filling in the gaps that exist with any one data provider. Using the inputs from multiple providers also reduces the potential biases that may be built into a provider’s methodology.
R-Factor™ is fully integrated into and supported by the efforts of our Asset Stewardship team. We disclose companies’ R-Factor™ scores, as well as the underlying basis for those scores, through our engagements with portfolio companies. This gives boards and management teams a roadmap for the specific dimensions that investors are evaluating to assess a company’s sustainability efforts. It also helps companies identify which metrics to disclose and manage to improve future scores, creating a positive feedback loop in the market.
R-Factor™ supports the development of sustainable capital markets by giving investors the ability to invest in ESG solutions that integrate financially material ESG data while incentivizing companies to improve their ESG practices and disclosure in areas that matter.
R-Factor™ offers clear guidance to boards and management teams on which ESG topics to focus on and disclose to investors. In doing so, this is the first ESG scoring system to offer companies a roadmap on which ESG practices to focus on managing and disclosing in order to enhance their scores and improve investors’ view of their ESG performance.
By investing in ESG solutions powered by R-Factor™, investors have the opportunity to ensure their capital is being allocated to companies that are focusing on managing and mitigating financially material ESG risks.
Learn how State Street Global Advisors leverages stewardship and investment expertise to create a transparent scoring methodology that we believe will become an integral part of the financial system.
July 2019, Rakhi Kumar, CA, Head of ESG Investments and Asset Stewardship