LibGuides: Corporate Compliance: ESG

What is ESG?

"ESG stands for environmental, social and governance. These are called pillars in ESG frameworks and represent the 3 main topic areas that companies are expected to report in. The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company's day to day activities." From Deloitte's ESG Explained Series, #1 What is ESG?

Environmental issues can include:

Carbon emissions
Climate change vulnerability
Water sourcing
Biodiversity & land use
Toxic emissions & waste
Packaging material & waste
Electronic waste

Social issues can include:

Labor management
Worker safety training
Supply chain labor standards
Product safety & quality
Consumer financial protection

Governance issues can include:

Composition of the board in terms of diversity & independence
Executive compensation
Accounting practices
Business ethics
Tax transparency

Other names for ESG investing: sustainable investing, responsible investing, impact investing, socially responsible investing (SRI)

Current Awareness Resources

Environmental, Social & Governance (ESG) Research Hub
Curated list of open access working papers, journal articles, and other scholarship on ESG on SSRN.
Environmental, Social & Governance (ESG) Newsletter
Legal newsletter featuring articles written by Bloomberg Law reporters and attorneys from prominent firms working in this area. Can subscribe to receive new issues via email.

Investor Activism News from Bloomberg
Pre-filtered search of relevant articles and analysis from Bloomberg's news sources. Can filter by subtopic, statute, agency, company or law firm as well as adding keywords to the search.

ESG Rating Scale-Specific Coverage

CSRHub Blogging
Blog of the CSRHub Consensus ESG Ratings company. Offers updates as major new data sources are added to the database but also provides examples of how and where ESG ratings are being used (like factoring into top CEOs rankings lists). Though the ratings themselves are through paid subscription, the blog is free to access.
ISS Insights
Reports and posts created by ISS which produces the ISS ESG Gateway.

Using/Applying ESG Ratings to Company Research - Reports and Guidance

BRAND FINANCE SUSTAINABILITY PERCEPTIONS INDEX 2024
Create free account or use LinkedIn login to access free copy of the report which describes which companies are perceived as being highly rated in the different ESG facets (like Trader Joes for environmental sustainability). Also looks at the role that sustainability plays in consumer choice of company by industry.

Business Journals & Academic Literature Databases

ABI/Inform Collection
Offers scholarly journals, dissertations, working papers, key business and economics periodicals, and country- and industry-focused reports. Search by keyword, company name, NAIC code or use the Classification Code option to search for indexed subtopics such as industry, management function or "Business Environment" which includes such things as social or energy policies.
Business Source Premier
"Provides access to a wide range of academic business journals and trade magazines. Topics include management, marketing, finance, economics, and management information systems. Full text access may be embargoed for up to three years. Coverage goes back to 1965."

See Falvey's ESG guide for additional news sources including specific ESG journals and reporters.

News Sources

ESG Ratings flag issues that are occurring within a company or industry. To full understand those issues and how they impact a company, take information from the ratings and use it to run search for litigation and legal news. May also want to look for social policy or shareholder-initiated actions and reports as well. The sources below are a good entry into this type of research

Bloomberg Law Dockets
Can search by: court, keyword, docket number, one or more parties, judge, case name, attorney or firm and by date but for best results, search using the Company Name field as a party to avoid subsidiaries and other cases mentioning the company by name but to which they are not a party. Use Nature of Suit to sort by type of litigation.
News from Bloomberg Terminal
Legal and Nonlegal news. Use Company name field to limit to just your desired company, avoiding subsidiaries. Topics drop down lets you filter to ESG Ratings (under Business News - Research) and Government, politics law – Litigation which is also helpful. Can further limit by date or location.
Lexis Legal News
Select publisher, state or practice area or run keyword search across all. For more targeted search, click on Advanced Search link and use Company Name field and Headline and Lead Sections field for a more manageable results list, particularly in regards to larger companies.
Lexis Dockets (Courtlink)
NOTE: not all dockets may be accessible under Villanova's academic subscription. Search by participant name (including company name). Add litigation area or type of case to further limit search.
Westlaw Dockets
Can limit by topic, jurisdiction or court. Use Advanced Search option to limit by participant name (including company names) and to use KNOS (key nature of suit codes used to identify case types in federal court).

Sustainability Frameworks

Organizations like the United Nations, the World Economic Forum and others have created specific frameworks that companies can use to report their ESG/sustainability efforts. They have been adopted by different nations and industries but the most widely used framework currently is the Global Reporting Initiative. Note that each framework varies in its focus/use with some focusing on specific concerns like environmental/climate while others offer standards for a more diverse array of ESG factors.

Global Reporting Initiative
Covers wide-range of ESG factors and has been in existence for over 25 years. Provides a set of Universal standards as well as standards for certain sectors and topics that companies may wish to report on specifically. Also includes a glossary to be read in conjunction with the standards.
United Nations Sustainable Development Goals
Framework of 17 goals that UN created as a call to action for countries to address climate, poverty, economic and social issues. Used a high-level framework to guide company policies and reporting.

Samples Policies and Documents

Practical Guidance: ESG Stakeholders, Frameworks & Regulation
Provides checklists, overviews of the various ESG frameworks as well as example searches for 10Ks mentioning these individual frameworks, regulatory overview and guidance on reporting and disclosure.
Corporate Administration and Governance: Policies, Training, Board Presentations and Memoranda Toolkit (US)
From Practical Law: "A toolkit of resources that will assist a US company in developing, reviewing or benchmarking corporate governance and administration policies, procedures, guidelines, training materials, board presentations and board memoranda."
Memorandum to Board: ESG Developments and Considerations
From Practical Law - "A form of memorandum to be delivered to a public company's board of directors highlighting recent environmental, social, and governance (ESG) developments and considerations."
Memorandum to Board: ESG-Driven Divestments
From Practical Law. Sample memo to Board of Directors that looks at factors and issues to consider when investors call for divestments based on ESG considerations.
Memorandum to Board: Antitrust Considerations in Shareholder Activism
Sample memo with practice and drafting notes.
Memorandum to Board: Issues to Consider When Preparing for Shareholder Engagement on Sensitive Social Issues
From Practical Law. Sample memo with practice and drafting notes for addressing ESG/ESP issues.
Environmental, social & governance (ESG): becoming a B Corp certified business
Video discussing B Corp certification from the international organization B Lab, which is "awarded to organizations that have high environmental, social and governance scores against their standard." Transcript link included at the bottom of the video.

Company ESG Ratings Databases

Free General ESG Rating Databases

Corporate Knights Global 100
Annual list of free sustainability rankings based on 25 performance indicators including carbon productivity and racial and gender diversity. Goes back to 2014. Does list full methodology and brands itself as "the world’s most transparent sustainability ratings."

ISS ESG Gateway
Reviews climate-related issues, cyber security risks and governance practices to assign a letter grade to companies. Also shows a distribution of grades across competitors in the industry to identify industry-wide issues and compare a company to its competitors performance on the rating scale.
MSCI ESG Industry Materiality Map
Search for an industry to identify ESG factors of concern for that industry to use as a benchmark when comparing individual companies operating within that industry. Highlights factors most important to that industry with weights of each.

Just Capital Rankings
Creates ranking list of top 100 MOST JUST companies but also assigns ratings to other Russell 1000 companies outside the top 100. Search by company name in the "Full Rankings Universe" search box. Gives percentage weights for each category and gives industry averages and industry best for comparison to competitors. See full list of Issue descriptions and weights here: https://justcapital.com/issues/

Sustainalytics (free, limited version)
Assigns numerical risk score upon review of 70 different factors. Does show rank in industry and global ranking of company based on the entire database of included companies. Does not offer specifics - see Morningstar Investment Center (Villanova subscription product) for more detailed report

Free Specialized ESG Ratings (focused on a particular type of issue)

CDP Scores
CDP surveys companies on environmental sustainability efforts in a variety of areas like water, climate, forests, supply chain etc and then rates them assigns them letter grades Requires that you register for a free account to access the ratings. Search companies by name, program (area of environmental action) or location or browse pre-filtered annual reports

Corporate Equality Index (Human Rights Campaign)
Annual ranking of companies' "corporate policies, practices and benefits pertinent to lesbian, gay, bisexual, transgender and queer employees." Generates top 100 list but can also search by company name for those outside top 100. Each factor is given a different point value and added together and then points may be deducted in the responsible citizen category "for a large-scale official or public anti-LGBTQ+ blemish on their recent records."

MSCI ESG Ratings and Climate Search Tool
Ratings look at factors such as Implied Temperature Rise, Decarbonization Targets, ESG Ratings, ESG Controversies, Business Involvement Screens and SDG Net Alignment. Only available for 2,900 companies that are constituents of the MSCI All Country World Index (ACWI). Rating is in narrative form rather than using a letter or number ranking scale.

ESG Ratings Databases Requiring Paid Subscription

CSRHub ESG Ratings
This rating scale rates companies on a scale of 0 - 100, and is broken into the following categories: Environment, Governance, and their Social component is split into two categories, Community and Employees. Scores are provided for each area in addition to an overall score for the company. Read more about their methodology here as well as a conversion chart for CSR's industry codes to NAIC codes: https://www.csrhub.com/csrhub-esg-ratings-methodology

Moody's ESGView (not available at Villanova)
Moody's credit rating agency provides an ESG scoring product but it is only available to subscribers.

Morningstar Investing Center
Features Sustainalytics ESG ratings scale - search by company name or industry. Also offers company profiles with current and historical stock info, key ratios, stock analysis, historical dividends, stock ownership profile, stock ownership by and salaries of officers and board and other relevant information.
MSCI ESG Ratings (full ratings not available through Villanova)
Ratings scale that identifies ESG risks, (what it calls Key Issues), that are most material to a industry or business sector. Ratings scale includes: leader (AAA, AA), average (A, BBB, BB) to laggard (B, CCC). Also rates equity and fixed income securities, loans, mutual funds, ETFs and countries. Can access trend reports and some research for free but individual company ratings reports available only with subscription.
S&P Global ESG Ratings (full ratings not available through Villanova)
Assigns score out 100 total points, "measures a company's performance on and management of material ESG risks, opportunities, and impacts informed by a combination of company disclosures, media and stakeholder analysis, modeling approaches, and in-depth company engagement via the S&P Global Corporate Sustainability Assessment (CSA)." Shows company performance relative to industry peers but must purchase report access for full data set.

Criticisms of ESG & Ratings Methodologies

ESG Ratings - General Commentary

Valuing ESG
Details the current problems with existing ESG frameworks and proposes moving to a valuation system instead to eliminate/mitigate those problems.
Aneil Kovvali and Yair Listokin. Brigham Young University Law Review. 2024, Vol. 49 Issue 3, p705-775.

Rating Scale Methodologies

CDP Scores Explained
Methodology - scoring is aligned with the Taskforce for Climate-Related Financial Disclosures (TCFD), some facets (like forestry impacts) produce multiple scores to account for different issues (ex. palm oil, clearing for cattle, timber).
Corporate Equality Index Methodology
Rated on scale of 0-100 based on point values earned in 4 categories and deductions from a 5th related to employer policies and actions related to LGBTQ+ employees.
Corporate Knights Global 100 Methodology Explaned
Breakdown of ratings categories and weight given to each
ISS ESG Ratings Explained
ISS offers ratings methodologies for each of its rating scales. Corporate rating (letter grade scale) is based on 100 indicators and can range from A+ to D- (poor performance). Corporate Governance looks at four areas Board Structure, Compensation, Shareholder Rights, and Audit & Risk Oversight and assigns a score from 1 -10 (low risk to high risk), SDG Impact score looks at the UN's 17 SDG factors and companies "are rated on a scale of -10 (significant negative impact) to +10 (significant positive impact)." The Cyber risk score "represents the likelihood that an organization will suffer a material cyber incident within the next 12 months, expressed as a score on a scale from 300 (high risk) to 850 (low risk)" similar to a consumer credit score.
Just Capital Ratings Methodology
Produces ranking of 100 MOST JUST companies each year, conducts surveys and their own evaluation of Russell 1000 companies to create list including industry-level rankings.
MSCI Climate Change Index Methodology
Ratings reports require a subscription but this explanation of how MSCI climate scores are calculated is free
MSCI ESG Ratings and Climate Search Methodology
Complex methodology as each factor is given a narrative description rather than assigned a score.
Moody's ESGView - General Principles for Assessing Environmental, Social and Governance Risks
Explains Moody's ESG calculations, helpful as the score reports themselves are not available to the Villanova community (requires subscription)
S&P DJI ESG Scores (Methodology)
Details the method S&P uses to calculate ESG scores which are range from 0-100 (worst to best performance). Scores are based both on S&P's analysis and, if submitted, the company's responses to the Corporate Sustainability Assessment (CSA) questionnaire (approximately 1500 companies). The scores for those who submit the questionnaire versus those who do not vary - read through this methodology to understand their differences. NOTE: this explanation of the S&P ESG methodology is free but access to the actual company ESG scores requires a subscription. View list of factors considered in each performance area: https://www.spglobal.com/esg/solutions/data-intelligence-esg-scores
Sustainalytics Methodology (free version)
Must register to download, open-ended scale with 0 representing no risk and most companies maxing out at 50 or below as high risk. Considers 1300 datapoints Clusters issues and to develop scores in the three different areas that are factored into ratings number

Criticisms of Specific Ratings Scales

The ESG Mirage (Bloomberg article criticizing MSCI)
Bloomberg article from 2021 criticizing the MSCI ESG ratings methodology and purpose. NOTE: Bloomberg also provides ESG rating so is a direct competitor to MSCI.

International Resources

ESG Reporting in Corporate Communication: What the EU Regulation Means for Corporate Reporting
Publication Date: 2024

Treatises and Guides

ESG Considerations for Asset Managers – The Emerging Regulatory Framework Applying to Investment Funds and Investment Advisers
CLE handbook updated annually to cover trends and emerging issues in this area.
ESG: What It Means for Boards, Management, and Counsel
CLE course handbook updated annually to cover new trends and issue.
Climate Change, Sustainable Investments, and Social Governance: Law and Compliance
Treatise organized into sections covering climate change risk and related issues affecting financial institutions, banks, and the insurance industry; ESG investing; ESG financial products; ESG and shareholders; and SEC enforcement and exams, and developing effective compliance programs for corporate issuers and advisers.

Corporate Compliance: ESG

General ESG Resources