Credit rating agency Scope has developed a methodology for scoring companies’ environmental, social and governance (ESG) impacts that it claims represents an “innovative and disruptive approach”.
Dubbed ‘ESG Impact Review’, the tool – aimed at investors and issuers
– bypasses corporate sustainability reports to instead draw on
macro-level data, incorporates analysis of supply chains’ impact on the
environment, society and governance, and assigns specific monetary
values to a company’s ESG impacts.
According to Scope, the new product addresses three major challenges
facing investors wanting to assess businesses’ sustainability.
“First, existing sustainability scores primarily rely on
non-standardised self-disclosure by companies,” said Diane Melville, who
recently joined Scope Group as head of ESG from the World Bank, in a
statement.
“Second, a key part of environmental and social impact stems from
supply chains, but corporate sustainability reports cannot integrate the
entire supply chain.
“Third, selecting different sustainability indicators and uneven weighting makes it difficult to compare the results.”
The new assessment is based on data produced by institutions like the OECD, World Bank, and ILO.
On the topic of it incorporating analysis of supply chains, Scope
said this addressed “one of the big bugbears for investors”, namely
measuring all the ESG externalities resulting from a company’s economic
activities.
“Integrating the supply chain into ESG analysis also helps all
entities involved feel collectively responsible for the externalities
they create,” added Scope.
To assign a monetary value to companies’ impacts, Scope said it uses
“the latest available scientific results on environmental and social
costs of economic activities, such as the calculated economic price on
society for polluting one litre of clean water”.
Scope’s ESG Impact Review is not a risk measure in the sense that it
does not directly analyse the risks borne by a corporate that could
affect its financial performance.
However, Scope said the output of its model provided an external cost
per euro of revenue that gave a good estimate of the maximum exposure
of a corporate’s revenue to transition risk.
The model currently covers the 1,600 constituents of the MSCI World Index.
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