Introduction To Wrds Overview of Esg Data at Wrds Into To Esg Data Slide Deck

Introduction to ESG
Data
Learning Objectives
Students completing the slide deck will:
 Learn about the “three pillars” of Environmental,

Social, and Governance (ESG) data
 Learn about some of the challenges of ESG data

What is ESG Data?
• ESG data consists of information about a company’s
management of ESG issues.
• ESG data can be used by investors to evaluate the

organization’s exposure to—as well as its impact on—
various environmental, social, and governance
factors.
Many Uses of ESG Data
• Many investors today ask, “Does a company with a
good ESG score perform better than an otherwise
similar peer company?”
• ESG data is commonly used by investors as a factor

that may help determine whether their investment
will produce sustainable, long-term financial returns
Many Uses of ESG Data (cont.)
• For example, ESG data can be used by investors to
measure the company’s exposure to environmental
risks (e.g., climate change) in order to gauge the
sustainability of long-term returns.
• ESG data is also used by investors who wish to align

their investments with personal or societal values. An
example of this may be the company’s impact upon
the environment (e.g., its carbon footprint).
Composition of ESG Data
• ESG data providers attempt to capture an
organization’s performance on hundreds of specific
ESG issues.
• Additionally, most of the data providers also

summarize the company’s overall performance across
environmental, social, and governance issues,
reporting total “ESG ratings” or “ESG scores.”
Three Pillars of ESG Data
• The best way to understand ESG data is to become
familiar with some of the individual factors
commonly measured for each of the three
categories, or—as they are often referred to—the
three “pillars” of data.
ESG Data
Environmental Social Governance

Environmental Data
Emissions
Water Stress
Environmental
• Environmental data
Pollution/Toxic
represents the policies and Waste
decisions an organization Climate Change
makes regarding its impact Vulnerability
upon the planet. Raw Material
Sourcing/Land Use
Opportunities: Green
Building; Renewable
Energy; Clean Tech
Environmental Data
Emissions
• Environmental data also Water Stress
Environmental
includes the organization’s Pollution/Toxic
management of Waste
vulnerabilities to the Climate Change
changing environment, Vulnerability
and may include Raw Material

Sourcing/Land Use
opportunities for
sustainable solutions. Opportunities: Green
Building; Renewable
Energy; Clean Tech
Human Rights
Social Data Geopolitical
Events
Labor
• Social data focuses on Management
the managerial decisions an Working and
organization makes regarding Safety Conditions
Social
people; this includes its Product Safety
employees and customers, as
Ethical Supply
well as the larger community. Chain Practices
Diversity, Equity,
Inclusion
Data Security
Human Rights
Social Data (cont.) Geopolitical
Events
• Keep in mind that if a data Labor
Management
vendor is focused on the
Working and
management of risk, they Safety Conditions
Social
may be reporting on the
Product Safety
existence of policies
regarding these issues. The Ethical Supply
actual impact of these Chain Practices
policies on the issues many Diversity, Equity,
Inclusion
not be measured at all.
Data Security
Governance Data Business Ethics
• Governance data has to do Board
Governance
with how an organization is Composition
controlled and operated.
Ownership
• It focuses on the
mechanisms by which an Executive Pay
organization and its people
are held accountable. Tax Transparency
Legal & Regulatory

Management
Importance of Industry
• Reviewing the data that makes up the “three
pillars,” it is clear that different industries will have
vastly different environmental, social, and
governance impacts, risks, and opportunities.
• ESG data providers use different methods to

consider each company’s scoring within the context
of that company’s industry.
Challenges of ESG Data
Some of the challenges of using ESG data include:
• Sources of the data
• Changing data
• Lack of transparency and consistency in methods
• Possible rater bias

Sources
• One major source of ESG data is the company’s
own reporting. However, this voluntary self-
disclosure may not be reliable.
• Another source is the media, which may cover

certain companies more closely than others.
• One ESG data provider, RepRisk, also uses social

media as one source of information, which may not
be reliable.
Changing Data
• A company’s ratings may change. Data providers

may revise past ESG scores as additional data
comes in over time.
• Methods used by the data provider for scoring may

also change from year to year.
Lack of Transparency
• There is no standardized method to measure or
weigh many of the individual ESG variables.
• The methodology data providers use to come up

with a company’s score—its overall ESG rating—
may be proprietary, confusing, or heavily based on
subjective factors.
Lack of Consistency
• Researchers comparing major ESG data providers
point out considerable differences in the scope,
measurement, and weight of data between ESG rating
agencies: “Each rater chooses to break down the
concept of ESG performance into
different indicators and organizes them
in different hierarchies.”
Berg, Florian and Kölbel, Julian and Rigobon, Roberto, “Aggregate
Confusion: The Divergence of ESG Ratings,” Review of Finance,
Volume 26, Issue 6, November 2022, Available at SSRN:
https://ssrn.com/abstract=3438533
Possible Rater Bias
• In their same analysis of ESG data provider
discrepancies, Berg, Kölbel, and Rigobon also
discuss a kind of “halo effect,” explaining:
“…a firm receiving a high score in one

category is more likely to receive high scores
in all the other categories from that same
rater.” Berg, Kölbel, and Rigobon (2019)
__
Possible Rater Bias (cont.)
• Other researchers, such as Boffo and Patalano, also
point to biases, noting:
“firms with much higher
market capitalization and
revenues consistently
receive higher ESG scores.”
--Boffo and Patalano (2020)
• They suggest smaller firms may simply not have the

resources to meet the reporting requirements some
ESG data providers require.
Boffo, R., and R. Patalano (2020), “ESG Investing: Practices, Progress and Challenges”, OECD Paris,
www.oecd.org/finance/ESG-Investing-Practices-Progress-and-Challenges.pdf
Conclusion
• ESG data consists of information about a
company’s management of ESG issues.
• ESG data is information about an organization that

can be used by investors and other stakeholders to
evaluate the organization’s exposure to—as well as
its impact on—various environmental, social, and
governance factors.
Conclusion (cont.)
• Some of the challenges of using ESG data include:
(1) reliability of sources; (2) data changing over
time; (3) lack of transparency and consistency in
methods; and (4) possible rater bias.

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Introduction to ESG

 Learn about the “three pillars” of Environmental,

 Learn about some of the challenges of ESG data

• ESG data can be used by investors to evaluate the

• ESG data is commonly used by investors as a factor

• ESG data is also used by investors who wish to align

• Additionally, most of the data providers also

Environmental Social Governance

• Environmental data also Water Stress

and may include Raw Material

• Governance data has to do Board

Legal & Regulatory

• ESG data providers use different methods to

• Sources of the data

• Lack of transparency and consistency in methods

• Possible rater bias

• Another source is the media, which may cover

• One ESG data provider, RepRisk, also uses social

• A company’s ratings may change. Data providers

• Methods used by the data provider for scoring may

• The methodology data providers use to come up

“…a firm receiving a high score in one

• They suggest smaller firms may simply not have the

• ESG data is information about an organization that

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