Evaluating Company ESG Scores - It is No Slam Dunk

Evaluating Companies’ ESG Score: It’s No Slam Dunk

04/12/2018

March’s madness is over, but if you’re a socially responsible investor, you may still have a bracket to complete.


If you’ve ever filled one out for the NCAA championship tournament, you know that assessing college basketball teams is a tall task. There are a host of variables to consider—win-loss record, points scored, points given up, strength of schedule and conference, and so on. And even once you’ve identified the important data points, you still have to decide how to weight each one. In the end, you come up with a rank based on multiple metrics and apply that framework to each team in the tournament. 


This approach is exactly how analysts derive a company’s ESG (environmental, social, and governance) score; first you need to identify the relevant data points, or indicators. These include:


ESG Questions


You may decide some indicators are more relevant for some companies than for others. For example, perhaps having an effective environmental waste program is important only for those companies engaged in manufacturing a physical product. You must also decide what weight to place on each indicator—for example, do you consider each to be equally important, or does it differ by industry? 


The end result is your ESG score for a specific company. Just like the NCAA tournament, however, it’s important to keep in mind that an ESG score is based on data known at the time—and not necessarily a reflection of what will happen as the games play out.

Potential Parametric Solution

For more than 15 years, we’ve been offering a robust and continually evolving menu of ESG screens and licensed indexes, giving investors a wide range of portfolio design choices. These include a series of risk-controlled, index-like exposures that can be used as a core equity portfolio allocation while aligning with common responsible-investing themes.



Martha Strebinger

Martha Strebinger, CFA - Investment Strategist

Ms. Strebinger is responsible for assisting in the continued evolution of Parametric’s Responsible Investing and Custom CoreTM strategies. She earned a B.S. in Human Biology, Health & Society from Cornell University. She is a CFA® charterholder.


The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss. 

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