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Issue #105: A weekly update on responsible investment.
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\\ Weekly Insights \\

Merry Christmas subscribers from Nossa Data’s team and our surprise elf visitor from one of our favourite ESG Standards — The Workforce Disclosure Initiative. This will be the last issue of 2022.

For the end of the year, I wanted to feature an article that Bloomberg published digging into MSCI ESG Scores and factors that helped companies receive upgraded scores.

What was looked at: 155 ESG Ratings MSCI awarded to S&P 500 companies from early 2020 to mid-2021.

Environmental Factors are the most deceptive when it comes to rating upgrades: MSCI looks at Environmental upgrades based on the “Potential impact of the world on the company, not the company’s impact on the world.” Ex: An MSCI view of Water Stress looks at: Does a local community have enough water for a company, not does a company stress a local water supply. Emissions are similar. Of 155 companies who received an upgrade, only one stated a cut in emissions.

Upgrades based on doing nothing: 50% of upgrades were thanks to re-weighting / methodology changes made by MSCI, not the companies.

Topics creating most improvement: Employment Practices, Data Protection and Board of Directors structure had this biggest impact in ratings improvements. Nearly 50% of upgrades included one or more of those initiatives.

10 companies highlighted and why they got an MSCI score upgrade:

  1. Target: AA — Why? Corporate Behaviour change in MSCI methodology awarded the company for an emphasis on ethics management and corruption.
  2. Citi Group: A — Why? Loan Portfolio, better data on commercial versus residential lending. Introduction of Whistleblower protection policies.
  3. General Motors: B — Why? Increase in electric vehicle sales.
  4. Interpublic: A — Why? Improved employment practices.
  5. NASDAQ: BBB — Why? Introduced an ESG Committee at board level, carbon neutrality achieved.
  6. FEDEX: BBB — Why? Board Structure and Emissions Reduction Strategy.
  7. Gartner: BBB — Why? Improvement on data protection.
  8. Carmax: BBB — Why? Employment Practices — Introduced annual employment survey. Data Protection improvement.
  9. Perrigo: A — Why? Board Structure, Employment Practices — Educational program, performance appraisal
  10. Disney: A — Why? Data Protection

\\ Nossa News \\

ESG Frameworks and Standards

See more on our LinkedIn page.

LTC Breakfast on Technology & ESG
Nossa Data enjoyed speaking at The Gherkin in London. We joined Damian Payiatakis: Head of Sustainable and Impact Investing at Barclays and Hannah Leach: Co-founder of VentureESG, a global initiative driving the adoption of ESG in the Venture Capital industry. Check out photos from the event here. Reach Out!

\\ Top Stories \\

BlackRock adds diversity target for U.S. boardrooms
BlackRock Inc said it wants U.S. companies to aim for a board that is 30% diverse and, for the first time, contains at least one member from an under-represented group. In new guidelines explaining its priorities for 2022 at portfolio companies, posted on its website, the $9.5 trillion asset manager also gave companies new guidance for reporting on climate change. But it said some continued investment in fossil fuels will be needed.

ESG ratings should be viewed as opinions only, experts say
Given the “subjectivity inherent in ESG ratings”, they should be viewed as opinions, similar to the buy, hold or sell opinions used by sell-side analysts. “When using ESG ratings from one provider to allocate assets, investors should be aware that other ratings providers may have dramatically different opinions and ratings.” ‘ESG Investing: Practices, Progress and Challenges’, shows the correlation between different scores given to the same firms by different providers. “The correlation between the ESG scores of different ESG ratings providers has been estimated at 0.54, and even lower when looking at the individual E, S, and G pillars.
FT Adviser.

CDP to Collaborate with GRI on Updated Biodiversity Reporting Standard
GRI announced that climate research provider and environmental disclosure platform CDP will participate in the process to update the GRI Biodiversity Standard. The organizations also stated that CDP will use the updated standard, once published, to inform its own disclosure system. GRI also announced that it has accepted an invitation to join the Taskforce on Nature-related Financial Disclosures’ (TNFD) TNFD Forum and become a TNFD Knowledge Hub partner. Launched in June 2021, TNFD aims to deliver a framework for organisations to report and act on evolving nature-related risks, with a goal to establish the framework in 2023. ESG Today.

5 Steps to Put Social Impact Reporting into Practice

  1. Define Your Report’s Scope
  2. Determine Reporting Format
  3. Assess meaningful Indicators for your company
  4. Collect and Present Your Data and Findings
  5. Continue Engagement and Evaluation


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\\ Report & Paper Highlight \\

FTSE4Good — 20 Year Anniversary Report

A timeline of progress with FTSE4Good.

What does a FTSE4Good Rating compose itself of?

  1. Measures quality of company’s management of ESG issues?
  2. Creates pillar exposures and scores
  3. 14 ESG Theme Exposures and Scores
  4. More than 300 ESG indicators with 125 applied to each company.

Average Quantitative ESG Disclosure Rate by Country:

Read the full report.

The Cost of ESG Investing

Even against increasing interest in socially responsible investing mandates, this paper finds that implementing ESG strategies can cost nothing. Modifying optimal portfolio weights to achieve an ESG-investing tilt negligibly affects portfolio performance across a broad range of ESG measures and thresholds. This is because those ESG measures do not provide information about future stock performance, either in relation to risk or mispricing, beyond what is provided by other observable firm characteristics. That the stock market does not reflect significant equilibrium pricing of ESG information is rationalized in a model of responsible investing wherein investors differ in which ESG-related criteria are used to weight their portfolios.
Read the paper.

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