Standard and Poor’s 500, or the S&P 500, is a renowned index which tracks the performance of the top 500 companies listed in US stock exchanges. Many financial products and services benchmark themselves to the S&P 500 index, and the index itself is also traded. As a leading ratings/index company, S&P has advanced into the forefront of ESG analysis, given the increasing investor attention on the sustainable development of corporations that they consider as investment targets. S&P Global now offers a service called the S&P Global ESG Scores, which outlines and details how traded companies are doing in terms of ESG.
Underlying methodology:
S&P Global ESG Scores is based on the S&P Global Corporate Sustainability Assessment (CSA), in which S&P invited over 13000 companies globally this year to submit their data and information to receive the impartial assessment results. With abundant data sources, CSA asks around 100 questions for up to 61 industries (e.g. automobiles, restaurants & leisure facilities, aerospace & defense) and divides those questions into 23 key criteria (e.g. climate strategy, labor practice indicators, anti-crime policy & measures) for the final ESG evaluation. The results are available for companies to view how they are doing with ESG goals compared to their industry peers’ performances. S&P Global ESG Scores stands out from other measurements in terms of its depth and breadth of company information and data.
Criteria:
S&P Global ESG Scores highlights the importance of a certain ESG-related issue regarding both society and the company’s benefits, which represents a rather well-rounded consideration of ESG in the commercial world, i.e. how company actions impact society and how they create long-term value for the business itself. The criteria topics of S&P Global ESG Scores are quite thorough and cover the diverse aspects of different industries.
Practicality:
S&P Global ESG Scores offers a practical analysis structure for companies given its extensive coverage of ESG topics as well as granular specification of the topics. For example, instead of including a wide spectrum of environmental issues under a single umbrella, S&P Global ESG Scores specifies ‘Electricity Generation’, ‘Fuel Efficiency’, ‘Packaging’, ‘Raw Material Sourcing’, and ‘Water Operations.’ This allows companies to fully and deeply self-assess their ESG performance. Nonetheless, if data collection is not satisfactory at the source level, i.e. if companies are not equipped with relevant monitoring and evaluation schemes to record the correct data or information that is referred to in the ESG assessment, the final ESG Scores may not be a good enough indication of the ‘actual’ ESG performance of these companies. Therefore, this ESG scoring system is a two-way system; the companies being assessed need to actively increase their ESG monitoring ability to better self-assess and thus direct the next steps on how to improve their ESG practices.
Author: Zoey Chen
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