New on ESG University this week is the first in a series of videos about ESG data. In this video we discuss the main approaches to dealing with missing data in an ESG data set. We cover the pros and cons of estimating data, ignoring data, and finding replacement data.
Sonya Dreizler, a subject matter expert on ESG and Responsible Investing, speaks with Gabe Rissman, Co-Founder & President of YourStake.org as part of this ESG University series that explores the Data Behind ESG.
One of the interesting questions that comes up in ESG data discussions is how different data and rating providers treat companies that don't have data points.
Why would a company not have data points and what are the different approaches to solving for that?
I see three primary approaches.
The first approach is to estimate data.
Greenhouse gas emissions is a great example. If a company isn't disclosing its emissions, you can still look at its operations and its products and give an estimate based on industry peers, and knowing its business model. That method doesn't work so well for a lot of other metrics like worker policies or product safety, especially in different geographies.
The second approach is to gather all the data that exists.
The next approach involves collecting all the data and policies and press hits for a company, which is a valid approach with certain successful use cases. But the data that is collected doesn't necessarily correlate with impact. And the companies that have the resources to create a lot of policies start to look much better.
The third approach is the YourStake approach, which is to use the data that exists and is impactful and relevant.
One example would be fossil fuel loans. Bank of America has data on the amount of funding given to fossil fuel companies.
Nike, on the other hand, has no data. Obviously Nike isn't lending to fossil fuel companies. So should they get a zero? Should they get a perfect score because they're not lending to fossil fuel companies?
Well, we don't do either of those approaches. We take the data and apply it to the companies that it's relevant to, and stay within the bounds of what the data is meant for and collected for. That way you're only comparing banks with banks, and you can compare Nike's industrial emissions to other companies' industrial emissions. The challenge is that sometimes you don't just want a fossil fuel financing score, you want to climate change score. And to get a climate change score, you want to consider banks that are lending to fossil fuel companies, and consider Nike's factory emissions (of course banks don't have the same sort of factory emissions). So then how do you combine those completely distinct data points together and come up with a climate number?
At Your Stake we call ourselves the no score data providers because we're not trying to mash together these different data points that don't always fit with each other.
We are letting advisors and individuals look at data points individually and select the ones that matter and then see how they compare within the scope of what's actually relevant.