The ESG arena is characterized by a large number of ratings providers offering a very wide array of data, from specialized providers that calculate metrics on specific ESG traits, such as carbon score and gender diversity, to providers that rate companies based on several hundred ESG-related metrics. Knowing where to start when evaluating data providers is a significant task and no single public source or directory offers a comprehensive overview of data providers. A few articles (e.g., Douglas, Van Holt, and Whelan, 2017) have tried to organize the available information, but given the fast growth of the ESG data space, they have become outdated quickly. At the time of this writing, we have identified 70 different firms that provide some sort of ESG ratings data.2 (This does not include the multitude of investment banks, government organizations, and research organizations that conduct ESG-related research that can be used to create customized ratings.)
A few think tanks and other organizations publish annual reviews of ESG data providers. SustainAbility has been publishing the Rate the Raters report since 2010 to provide survey results from various sustainability professionals regarding the quality of certain ESG data providers.3 SRI-Connect also publishes an annual survey called the Independent Research in Responsible Investment Survey, or IRRI,4 which provides rankings on ESG data providers as well as recognizes the efforts of individual ESG researchers and analysts.
An ESG investor should begin by properly categorizing the various types of data available based on the information they seek. We have developed a three-tiered framework that allows investors to better understand the different types of ESG ratings data:
Fundamental. This category includes ESG data providers that collect and aggregate publicly available data (typically from company filings, company websites, and nongovernment organizations, or NGOs) and disseminate these data to end users in a systematic way. Typically, these providers do not have a ratings methodology and do not provide overall company ESG scores. The user of the data must determine the materiality of the data and develop their own methodology when constructing a portfolio. Examples of fundamental providers are Refinitiv (formerly, Thomson Reuters) and Bloomberg.
Comprehensive. This category includes ESG data providers that utilize a combination of objective and subjective data covering all ESG market segments. Typically these data providers will develop their own ratings methodology and combine publicly available data as well as data produced by their own analysts through company interviews/questionnaires and independent analysis. These providers use hundreds of different metrics across environmental, social, and governance concerns and apply an established, systematic methodology to determine a company’s overall ESG score.
In addition, these companies often scrub data from public websites and newspapers to supplement company ESG ratings with additional information, such as controversy assessments related to company-specific issues. They also produce country and industry trend reports. Examples of comprehensive providers are MSCI, Sustainalytics, Vigeo Eiris, ISS, TruValue Labs, and RepRisk. TruValue Labs and RepRisk are part of a growing field of algorithmic-focused ESG data providers and rely less heavily on traditional ESG analysts to create company scores.
Specialist. This category includes ESG data providers that specialize in a specific ESG issue, such as environmental/carbon scores, corporate governance, human rights, or gender diversity. Given these providers’ expertise in a specific field, they are useful for investors whose objective is to tackle a particular issue and improve in that domain. Examples of these providers are TruCost (now owned by S&P Global), the nonprofit Carbon Disclosure Project (CDP), and Equileap (gender equality data). Given the vast amount of ESG data the comprehensive providers acquire and maintain, they often can provide specialized data to end users.