Determining the variances between data providers and how best to account for them can be challenging and requires careful examination of their underlying approaches. Some common points of difference between providers include:
Data Acquisition and Estimation. In the course of our research we found discernable differences among ESG data providers on raw data sourcing and acquisition methods. ESG data providers combine data from companies using traditional sourcing techniques with statistical models that attempt to estimate data for unreported companies — based on similar industry and company characteristics. Once again, this means that investors are incorporating judgment calls by the provider into their investment processes.
Materiality. As part of a proprietary solution, ESG data providers typically make their own determination on the issue of materiality. An ESG score for a company that is simply an amalgam of scores on both material and immaterial issues does not provide the type of transparency and relevance that asset owners require. Some ESG data can reflect a strong signal for performance by one company but not for another because of the relative importance of that issue in their business.
The academic research behind the SASB materiality framework underscores the importance of the choice of a materiality framework by data providers.2 Alongside the low correlation of ESG scores provided by ESG providers, differences by provider in how materiality is defined and unveiled adds to the difficulty asset owners and managers have in selecting an ‘off-the-shelf’ provider.
Aggregation and Weighting. Each ESG data provider has developed a method to aggregate and weight particular ESG factors for its summary scores. However, without knowing the aggregation and weighting methodology, users of this data are buying a subjective point of view rather than a product that provides full transparency of the method.
At State Street Global Advisors, we have made ESG a priority in our research agenda. We believe that the data that supports our products should align closely with our perspectives. Our approach to ESG is fully transparent and is guided by our conviction that responsibly-managed companies deliver stronger, more sustainable long-term results. This means incorporating high-quality ESG inputs into our investment process and delivering a transparent solution for our clients. Our asset stewardship efforts highlight our belief that asset managers can and should drive greater disclosure in investor-relevant data that companies provide using a standardized and consistent framework. This creates a positive cycle that allows for more thorough information inputs into investment decision-making.
The State Street Global Advisors ESG data architecture leverages multiple data sources, and draws on our systematic investment management expertise to offer deeper insights and stronger solutions to our clients. We have incorporated the ‘materiality map’ developed by SASB into our transparent framework because of their consultative approach and the strong academic evidence that supports the implementation of such standards.3 By aligning to the SASB guidelines, we support and facilitate the development of market infrastructure to make material ESG data available to investors.
Our approach is enriched by assessments from our Asset Stewardship team. Their active engagement with companies allows us to leverage their expertise to map hundreds of governance metrics and assign custom weightings for each metric across six global regions.
This data architecture is a powerful investment tool and delivers transparent ESG scores that enable the creation of fund- and portfolio-level insights for assets managed by State Street Global Advisors.
Clients may be able to reap the benefits of the State Street Global Advisors approach through a suite of products that offers exposure to equity and fixed income markets. We hope this look into the many considerations for evaluating ESG data providers supplies you with ideas to leverage when considering ESG investment decisions. As you move forward, you may wish to use the sample resources described below. As always, we invite you to contact your State Street Global Advisors Relationship Manager or access our ESG website at ssga.com/esg to learn more about these resources and our ESG capabilities.
Understanding & Comparing ESG Terminology
A practical framework for identifying the ESG Strategy that is right for you.
Next Generation ESG for Better Alpha
A tailored approach to ESG metrics for active equity strategies.
Harnessing ESG as an Alpha Source in Active Quantitative Equity
Insights into leveraging ESG factors to increase portfolio returns.
1 Mozaffar Khan, George Serafeim and Aaron Yoon, Corporate Sustainability: First Evidence on Materiality (November 9, 2016).
2 Khan, Serafeim and Yoon.
3 Khan, Serafeim et al. “Corporate Sustainability: First Evidence of Materiality.” Harvard Business Review, 2016.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information.
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Exp. Date: 01/31/2022