ISS ESG

METHODOLOGY INFORMATION

ISS ESG empowers investors with actionable intelligence to guide financial flows towards sustainable growth and long-term value creation.

KRISTINA RÜTER

Global Head of Methodology
ISS ESG

Transparency of ISS ESG methodologies and processes governing research and solutions enables clients to select the data and signals best suited to successfully act on individual ESG investment strategies. Our methodology transparency ensures credible and reproducible results, serves to engage rated issuers, and allows for flexible use and customization of deliverables by our investor clients.

While ISS ESG’s methodologies have always been disclosed to investor clients, we are taking transparency to the next level by publicly disclosing related information on this dedicated site. We firmly believe in the value of transparency as a catalyst for selecting the best ESG solutions to realize sustainable investment objectives and generating real-world impacts towards sustainable development.

THE ISS ESG DIFFERENCE

The landscape of ESG risks, impacts and opportunities and sustainable investment strategies, as well as framing conditions, including regulation, voluntary standards, scientific and technical developments are highly dynamic and require an agile forward-looking ‘first mover’ approach to data collection, methodology and product development in order to best serve investors with highly innovative and versatile data and solutions to successfully realize their individual sustainable investment strategies and objectives and to assist with compliance with regulatory mandates.

Within ISS ESG, a dedicated ESG Methodology team with the mission and mandate to stay abreast of trends, developments and existing and emerging client and prospect needs exists. ESG Methodology works closely with product and research teams, a team that focuses on public affairs and additional stakeholders to initiate, develop and agree upon proposed and required methodology developments and enhancements.

To ensure a robust and consistent methodology development process and structure, an internal Methodology Review Board (MRB), consisting of experienced methodology and research leaders, has been established by ISS ESG to guide, steer and vet the methodology development strategy and process, setting and agreeing upon overall objectives and strategic targets, clarifying, reviewing and reassessing priorities as well as initiating and confirming specific new methodology developments or adjustments.

MRB members are experienced ESG research leaders, representing distinct but interlinked areas of ISS’ business, including the research process and the operational process chains.  The MRB is currently comprised of the Head of ISS ESG, the Global Head of Governance Research, the Global Head of ESG Research, the Global Head of ESG Methodology, the Global Head of Data Strategy, the Global Head of ESG Products, the Global Head of Climate Solutions and the Director of Research, Integrated Financials & Impact.

How ISS ESG’s methodology aligns with globally accepted frameworks

A wealth of ESG frameworks have been developed through comprehensive multi-stakeholder consultations over the past two decades. These frameworks reflect widely shared expectations and serve as an indication of the direction and scope of prospective regulatory measures. They therefore provide valuable guidance for sustainability reporting that ensures comparability and is decision-useful for institutional investors.

ISS ESG data and research is comprehensively and systematically mapped to recognized disclosure and performance standards. It is used by institutional investors to align investment and stewardship decisions with established frameworks and report against such frameworks. Of particular note in this context are the complementary materiality approaches developed by Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI), and the recommendations for financial risk disclosures by the Task Force on Climate-related Financial Disclosures (TCFD).

ISS ESG has developed a specific suite of solutions based on business-relevant targets under the United Nations Sustainable Development Goals (SDGs), the most widely recognized and comprehensive framework for assessing the real-world impact of business activities, or environmental and social materiality.

ISS ESG strives to provide its clients with high quality and reliable ESG research. To this end, the ISS ESG research team works towards continuously improving research processes and has put in place safeguards designed to ensure accuracy and reliability. These efforts are led by a dedicated Quality Management & Assurance team.

ISS ESG employs approximately 200 dedicated ESG analysts, mainly in the Business Intelligence and Ratings Research units. All analysts undergo extensive training at the time of onboarding on ISS ESG’s methodologies, as well as its research processes and techniques. In addition, many analysts draw on knowledge gained through higher education as well as prior work experiences. ISS ESG continuously provides its employees with various forms of market education and training to help ensure that research and analyses are in line with market requirements, investor expectations and ISS ESG’s methodologies and processes.

The research and assessments conducted by ISS ESG analysts are used to form a broad suite of products and solutions intended to meet the varying needs of the investor community and are continuously enhanced and broadened as new needs and uses occur.

The quality program of ISS ESG research is governed by the principles of:

  1. Independence
  2. Comparability
  3. Completeness
  4. Timeliness
  5. Transparency

It is essential that ISS ESG is independent in order to satisfy the market need for reliable and impartial ESG assessments and data. As a unit within ISS, ISS ESG, like all services offered for the institutional investor community by ISS, is separated by a “firewall” from ISS Corporate Solutions, Inc. (ICS), ISS’ wholly owned subsidiary which offers services to corporate issuers. The firewall serves to mitigate potential conflicts of interest between these distinct businesses. An ISS-wide compliance department monitors the separation between ISS and ICS, and implements policies and procedures designed to mitigate or manage potential conflicts of interests within ISS. The provisions of ISS’ Code of Ethics provide that an analyst shall not evaluate a company or a matter in which they have a personal interest (or that such an interest must be disclosed).

ISS ESG research products enable investors to compare issuers across a variety of signals, including, depending on the particular product offering, performance against ESG criteria, transparency, corporate malpractice, and revenue generation. Comparability is ensured by assessing all issuers based on clearly defined evaluation rules to ensure that comparable cases are assessed alike. The evaluation rules are monitored and developed by dedicated analysts with thematic responsibility as well as the Global ESG Methodology team, and by extension ISS ESG’s methodology review board, and serve to reduce subjectivity in data collection and assessment. Application of these rules is ensured by quality assurance processes. All assessments are based on data that is procured through rigorous and clearly documented data collection processes. Assessments are generally reviewed by peers. Certain high-level assessment signals and scores require a multi-layer sign-off process where key information is verified by senior members of the research team.

Furthermore, dedicated analysts in ESG research continuously work on identifying and eliminating potential error sources and conduct targeted analyses to monitor data quality.

Investors need complete information for decision-making purposes. ISS ESG research considers all material ESG aspects and information when assessing an issuer to deliver complete data to users. ISS ESG data and analysis are primarily sourced from publicly available information, including a company’s own disclosure and reporting as well as subscription databases such as the CDP. As noted above, while ISS ESG may accept certain non-public information (such as from official company documents), ISS ESG does not accept material non-public information (meaning information that a reasonable investor would consider important in making an investment decision or information that is likely to have a substantial effect on the price of a company’s securities). Data from alternative sources (reputable media sources, NGOs, government and inter-government agencies) triggers and feeds into in-depth analysis under ISS ESG’s Norm-Based Research which in turn feeds into ISS ESG’s Corporate Rating. Alternative data sources can provide counterbalance to corporate disclosure, enabling an additional extra-financial overlay for corporate analysis. Stakeholder-driven alternative data is widely considered an important early warning signal. Additionally, for many data sets, the research team conducts fact-finding dialogue with companies to provide supplementary detail and confirmation. The feedback process with companies takes place on a cyclical basis, as well as in particular cases during event-driven updates. Information shared by companies is reviewed, discussed with the subject company if necessary, and assessed according to ISS ESG’s evaluation guidelines. ISS ESG also consults from time to time with experts and field specialists to cross-check information and deepen the understanding of benchmark corporate practices.

To ensure that ISS ESG research incorporates complete information, material new information needs to be integrated in a timely manner. To this end, ISS ESG applies a staged refresh procedure: scheduled annual updates are complemented by ad hoc updates triggered by significant events, including but not limited to, corporate actions (e.g., mergers, major spin-offs, acquisitions) and new or evolving ESG controversies. Thus, ISS ESG aims to ensure that information which materially affects ISS ESG scores and signals is integrated into the assessments ahead of scheduled updates.

ISS ESG clearly and transparently communicates with both the users of the research products as well as with the assessed entities. Clients receive detailed information on the underlying methodologies used for particular ISS ESG offerings and can view granular data that underlie the scores and signals. Clients also have access to analysts to inquire about assessments or evaluation approaches in detail. Corporate issuers are not only informed that ISS ESG conducts research on them and for some types of research issuers are provided with draft reports prior to the publication of research results and the opportunity to review and provide feedback. Final versions of certain ISS ESG research reports can be accessed by the covered issuer free of charge.

Corporate issuers can actively engage with ISS ESG analysts during company outreaches within the boundaries of our independence rules.

ISS ESG also aims to increase transparency towards the general public and interested parties regarding the work that it does. The information made public on this website is part of this initiative.

Public corporate disclosure accounts for a significant share of processed ESG data. The following corporate disclosures are systematically reviewed by ISS ESG:

  • Online reporting and corporate filings (Annual reports, Sustainability reports, Integrated reports)
  • Company policies
  • Company ESG disclosures to national authorities (e.g. modern slavery statement required under Section 54 of the United Kingdom Modern Slavery Act 2015; human rights due diligence plan required under French Duty of Vigilance Law) or recognized initiatives (e.g. environmental disclosures to the CDP and the Science Based Targets initiative).

In addition to corporate disclosures, ISS ESG collects information from a range of alternative ESG data sources, including the following: media sources (international, local), social media, NGOs, government agencies, inter-governmental agencies. Alternative data provides counterbalance to corporate disclosure, enabling an additional extra-financial overlay for corporate analysis. Stakeholder-driven alternative data is widely considered an important early warning signal.

Verification by companies is a central step in our data collection process. ISS ESG provides access to key ESG research reports in the Governance Analytics platform of ISS’ wholly-owned subsidiary ISS Corporate Solutions, Inc. (“ICS”). Separately, ISS ESG Research submits full draft reports for the ESG Corporate Rating, Norm-Based Research, and Controversial Weapons Research for issuer review.

ISS ESG generally relies on publicly available information for its research offerings. ISS ESG does not accept, use or incorporate in its research offerings any material non-public information (meaning, generally, information that a reasonable investor would consider important in making an investment decision or information that is likely to have a substantial effect on the price of a company’s securities). To the extent that any research offerings as described on this website may involve dialogue with the subject companies, those companies are instructed not to provide to ISS ESG, and are made aware that ISS ESG will not consider, any material non-public information.

ISS ESG applies a staged refresh procedure to ensure that its data, assessments, scores and ratings are up to date. Scheduled annual updates are complemented by ad hoc updates triggered by significant events, including but not limited to, corporate actions (e.g. mergers, major spin-offs, acquisitions) and new or evolving ESG controversies.

For ISS ESG clients using this site for purposes of meeting their SFDR and other regulatory requirements, we recommend you use (and you may provide to others as necessary) direct links to the appropriate section and/or documents on the new site in order to ensure the most up-to-date information is accessed. All disclosures are provided by ISS ESG in English. Should you wish to translate site text into a local language, you may do so but we ask that you affirmatively disclose to any users that the translation is your own and, where there may be discrepancies, the original English version on ISS ESG’s site prevails.

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