Over the last several years, the investment community has seen a rapid increase in both the supply of and demand for the ESG attributes of companies. On the demand side, investors from the largest global asset managers all the way down the scale to individual retail investors are looking to integrate ESG analysis into their investment decision-making, or even incorporate their personal values into their investment portfolios.
The supply side of the equation has been filled from two sources. The first is companies themselves, who increasingly are providing more context as to the ESG risks and opportunities inherent in their businesses. The second is providers of ESG data, ratings, and research, which can help organise company data into a consumable form, fill in undisclosed gaps, as well as add expertise and opinions that can fill out an overall view of an investment.
The NYSE, and our parent company ICE, sit in a unique place in the investment ecosystem. ICE is a globally recognised provider of decision-useful data to investors, and NYSE is a leader in bringing companies and their investment stories to the capital markets. We have a shared goal when it comes to improving transparency in the ESG characteristics of investments and there are benefits to our entire community from matching ESG data supply and demand.
ICE ESG Reference Data and ESG Data Viewer
Over the last two years, ICE Data Services has built out the ICE ESG Reference Data universe, a data set of more than 300 key ESG data attributes across a universe of nearly 3,500 companies, as well as coverage of major indices in North America, EMEA, and Latin America.
We’ve then made this data set available to NYSE-listed companies as part of their listing, built into a platform entitled ESG Data Viewer, which enables easy evaluation of particular companies, as well as benchmarking and gap analysis, for listed company investor relations and sustainability professionals.
Why does ESG “as reported” data matter to investors and companies?
As mentioned above, investors have long been able to access research and ratings on nearly every publicly available security. That said, ratings and research by definition contain the opinions of the raters, and are often designed for different measurements (such as risk vs. opportunity). Numerous academic studies have noted the wide divergence between such ratings, even on the same securities.
Over time, this has increasingly led investors to go looking for the source data. While five different providers may have their own views on what constitutes a “good” governance structure for a company, investors with access to as-reported data can come up with their own definition and apply their own rigour to its application.
From the company side, as more businesses are producing sustainability information, each additional data point updates the overall context for every other company. What’s considered strong ESG disclosure, or strong ESG performance, as of today? Further, how can companies craft a message that will stand out relative to peers or the market as a whole? Reviewing other companies’ disclosures in a simple and structured format can help make this task more straightforward.
How do we approach building our ESG data universe?
ICE collects ESG data in a structured format from publicly available disclosures – from companies listed in the U.S. as well as other global markets. All data is from company-generated sources, such as government filings, company sustainability websites, and company CSR or integrated reports.
Further, we track the exact location of each field to allow for easy reference to the source document. Information is collected on an ongoing basis, not just once per year for a specific report; hence, it can help a company see in almost real-time what its ESG profile looks like versus peers and the market. Note that we provide no assumptions or ratings – just the as-reported values from companies themselves. Companies are given the opportunity to update any data points therein by simply pointing ICE to public URLs containing new ESG data.
What ESG data sets are we populating?
Our taxonomy includes more than 500 fields that are widely reported and easily comparable across the universe of public companies. Environmental data includes company GHG emissions, water usage, waste, and policies associated with lowering environmental impact. Social data includes information on company-offered employee benefits, as well as diversity measures at board, management, and employee level. Governance data includes board composition, voting power, and cybersecurity disclosures. In addition, we gather forward-looking information, including emissions-reduction goals and targets, as well as progress against those goals (not all relevant ESG information is backward-looking).
How are listed companies using the platform?
The NYSE-listed community includes a range of companies, from those that have been trading for decades to others that have been listed for only a few days. The former set of established publicly traded companies tend to use the data set for updating their ESG strategy and messaging. As peers release new information, the company can determine whether to add similar disclosures to limit any perceived gaps.
Companies starting an ESG programme often use the platform to establish the ramp from early-stage company disclosure levels all the way up to best-in-class. Some companies include the data disclosed by peers as an input into an initial materiality assessment, serving as the sets of values that industry participants have seen as sufficiently important to disclose.
How are companies likely to integrate ESG data into their workflow in the future?
First, new regulatory requirements are approaching that can affect the entire public company ecosystem. Shortly, many EU investors will need to disclose the impact of their portfolio investments (and companies owned by these portfolios will be pressured). U.S. regulators are reviewing the potential for ESG disclosures as well. Companies are becoming more likely to fall under regulatory demands regarding ESG disclosures, and ESG data disclosure is increasingly a matter of ‘when’, not ‘if’. Any company presented with disclosure requirements will need to see how best to present its viewpoint in a decision-useful manner.
Second, for many large companies, the ESG footprint of the business is upstream in its supply chain; companies are looking to ensure the materials they source are free of environmental or social concerns. Further, many companies are also looking to evaluate their products’ impact downstream, both to measure Scope 3 emissions as well as to take a full-lifecycle approach.
We expect the exchange of ESG data to spread through companies’ value chains and become standard business practice with public-company disclosures serving a core role and providing context.