BACKGROUND
As a result of surveys and customer feedback, Fi360 is providing ESG Scores to our Fiduciary Focus Toolkit subscribers. Released in August 2021, the scores enable subscribers to do the following:
- Score client portfolios across numerous ESG factors.
- Isolate investments within portfolios that score poorly on ESG factors.
- Find replacement investments that have positive ESG factors that also meet fiduciary standards
- Construct portfolios that meet fiduciary requirements and express the ESG preferences of clients.
Fi360 uses OWL Analytics as a data provider of ESG Scores. ESG ratings are known to be subjective. A company can score high with one ratings vendor and poorly with yet another ratings vendor. This is because ESG is an inherently subjective topic. Instead of trying to create yet another subjective ESG rating system, OWL built an ESG rating system based on the wisdom the world’s leading ESG research and ratings vendors. Their “consensus” approach is one we believe that is the best approach for most people.
OWL aggregates hundreds of sources of ESG data and research, including ratings from 10+ of the largest ESG ratings vendors in the world. The goal of the OWL aggregation process is to increase the objectivity and freshness of ESG ratings. OWL does this by identifying which ESG factors each source thinks are relevant for each industry and from there creating consensus ESG factor models for each industry. Each company that OWL covers is then rated based on the consensus model of its industry. The full OWL ESG Fund Ratings Methodology Document can be downloaded here: OWL ESG Fund Ratings Methodology.pdf
Because OWL has so many sources, their OWL ESG Consensus Scores consume an extremely wide array of ESG viewpoints that influence the market, i.e. institutional investors that move large sums of capital based on the ESG ratings and metrics published by OWL’s sources. Moreover, because OWL has so many sources, Scores are constantly being updated(once an month in Fi360 Toolkit), enabling their customers to stay ahead of the slow annual ratings cycles of the major ESG ratings vendors. The following factors are included in ESG Scores:
Pollution Prevention – E1
Measures how well a company is managing its’ risks and opportunities related to preventing pollution. Companies with higher E1 scores demonstrate a dedication to and a track-record of lowering their pollution compared to industry peers.
Environmental Transparency – E2
Measures how well a company is managing its’ risks and opportunities related to being transparent about environmental processes and track record. Companies with higher E2 scores than industry peers tend to be more open to engaging with and being monitored by stakeholders that want them to be more accountable regarding the environment.
Natural Resources – E3
Measures how well a company is managing its’ risks and opportunities related to their use of natural resources. Companies with higher E3 scores than peers demonstrate a dedication to lowering their consumption of natural resources, recycling of the natural resources they do use, and the long-term preservation of those resources.
Compensation & Satisfaction – EMP1
Measures how well a company is managing its’ risks and opportunities related to the compensation & employment satisfaction of their workforce. Companies with higher EMP1 scores demonstrate a track-record of superior employee satisfaction due to better than industry pay, benefits, and other initiatives focused on workforce loyalty and life quality.
Diversity & Rights – EMP2
Measures how well a company is managing its’ risks and opportunities related to the diversity and rights of the workforce. Companies with higher EMP2 scores than peers demonstrate dedication towards increasing diversity in their workforce and ensuring workplace rights.
Education & Work Conditions – EMP3
Measures how well a company is managing its’ risks and opportunities related to employee education and work conditions. Companies with higher E2 scores than peers are more dedicated to the advancement of their employees and providing healthy and safe work conditions.
Community & Charity – CIT1
Measures how well a company is managing its’ risks and opportunities related to how they treat the communities in which they do business. Companies with higher CIT1 scores than peers demonstrate a dedication to improving the communities in which they do business, including giving to charity and supporting charities through volunteering.
Human Rights – CIT2
Measures how well a company is managing its’ risks and opportunities related to human rights issues. Companies with higher CIT2 scores than peers demonstrate better human rights track-records and often put substantial effort into reducing the human rights violations within their supply chains.
Sustainability Integration – CIT3
Measures how well a company is managing its’ risks and opportunities related to making their products and services more sustainable. Companies with higher CIT3 scores than peers demonstrate a dedication to improving the long term social and environmental impact of their products and services.
Board Effectiveness – G1
Measures how well a company is managing its’ risks and opportunities related to the Board’s ability to monitor and affect ESG policies and performance. Companies with higher G1 scores than peers tend to have more diverse Boards with track-records of enacting positive changes regarding sustainability at their companies.
Management Ethics – G2
Measures how well a company is managing its’ risks and opportunities related to management ethics. Companies with higher G2 scores than peers demonstrate a dedication to ethical business practices and have less incidents of corruption & fraud.
Disclosure & Accountability – G3
Measures how well a company is managing its’ risks and opportunities related to disclosure of ESG goals and track-record towards those goals. Companies with higher G3 scores than peers set defined sustainability goals and demonstrate concerted efforts to align employees, suppliers, and other stakeholders in efforts to reach those goals.
How to use:
You must subscribe to/license Fi360’s Fiduciary Focus Toolkit software, access the Investment Screener module, and add these ESG Scores as part of your screening criteria. The ESG scores can be used alongside other metrics like the FI360 Fiduciary Score. Additionally, if you frequently want to view ESG scores, you can save your search for easy reference next time. Within the Clients section of the Toolkit, that saved search containing ESG scores can also be exported to view Scores for an existing client's holdings.