There is enough data to compile ESG reports, but it is not being used correctly, according to All Street CEO Emanuela Vartolomei.
The firm has recently launched ESG ratings platform Sevva, which is powered by proprietary All Street technology, and uses artificial intelligence to provide sustainability assessments for more than 70,000 listed companies worldwide.
Vartolomei said the reason there are complaints about gaps in corporate ESG data is because of how that data has traditionally been used.
“There is plenty of ESG data but you do need more statistical natural language processing (NLP) tools to be able to process it.
“You also need to have peer group analysis in order to be able to interpret the data,” she said.
Reliable robots
Sevva uses NLP to assess all publicly available ESG disclosures from a company. Vartolomei explained this changes the data points that are being used.
“We are defining a data point as being a few paragraphs of text that describe the company action and what they do with that.
“And that is different from, ‘I want the carbon numbers, I want gender diversity numbers. If I don’t have these numbers it means this company is not on my radar’.”
She also described why it was important ratings should be able to compare companies with their peer group.
“I look at one company and I want to know what this company is doing. A human analyst can’t analyse the other 1,000-, 500-, 300-company peer group.
“That is why that data seems to be unreliable. But if you compare that data with the peer group data in real time and you use unstructured data instead of structured data, then there is more than enough data to make investment decisions.”
Universal ratings
The sustainability rating Sevva provides is a Sustainable Development Goal (SDG) Impact Factor. Users can click through on a rating and see the original text that led to the score. Vartolomei said the product uses business sector groupings as an additional factor to determine the peer group, which means it is automatically adjusting for the industry-specific nature of some SDGs.
Transparency is increased in Sevva’s process because there is no human interpretation of the data, said Vartolomei commenting on rival ratings groups’ methodology. Sevva offers what Vartolomei called a “universal rating” – she added this is a new concept for the capital markets because traditional ratings agencies will each have their own discounts.
“When you look at the sustainability assessment of a company, you have two sets of data to consider. One is what the company does, what the company says they do. And the second set of data is what other people say about this company.
“A traditional ratings agency combines this in one single rating, which is what confuses a lot of people because if you manage to plot all different ratings you have this completely non-correlated output.
“Because they interpret the data in different ways and apply these discounts in different ways within their own methodology that doesn’t have a click through like we have, you don’t really know what got in to what and how do I compare this rating with that rating.”
Sevva focuses on what a company does and its efforts towards the transition pathway, according to the CEO.
No exclusions
Vartolomei said Sevva does not exclude companies at risk of stranded assets or those in carbon-intensive sectors because some of them are making real contributions to the SDGs.
Looking at the platform’s ratings of companies in the oil and gas sector, it is clear there are very few making a strong, positive SDG impact. But Vartolomei said Glencore stands out for doing well on the SDGs.
“There is another missing element of the UN SDG which the mining companies are doing well, which is [SDG 1] no poverty.”
She described how some mining companies are addressing the goal by providing employment and supporting no poverty programmes in the countries of operation – and how people can overlook this.
“Glencore, for example, is also putting a lot of money in to carbon capture technology research and development and has a transition pathway where it is looking to mine different raw materials to support the electric vehicles industry.”
Despite fewer humans involved in the production of these sustainability ratings, Vartolomei said Sevva comes in at a similar price to traditional ratings agencies. But, she said, it offers 10 times the value.
