Low Carbon Transition Rating
ESG Risk Ratings Indicator Library
Morningstar Sustainalytics uses indicators to measure a company’s performance in managing its material ESG issues. Indicators provide a systematic and consistent way of assessing clearly delineated and standardized criteria. The criteria speak to key areas of risk and benchmark a company’s performance against relevant best practices. Indicators are scored on a scale of 0 to 100.
Types of Indicators
Policy Indicators
Policy indicators measure the strength and quality of an issuer’s policy commitment to addressing a material ESG issue. One often-used policy indicator is Environmental Policy. It is part of the Management Indicator sets for several MEIs, in particular: Carbon – Own Operations, Emissions, Effluents and Waste, and Resource Use.
Programmes and Management Systems Indicators
Programmes and Management Systems indicators evaluate a company’s operational systems for managing its material ESG issues. These indicators are aligned with and reflective of recognized management systems, such as the ISO 9001 quality standard or the ISO 14001 environmental management standard. Their assessment is based on the following criteria:
- Managerial responsibility
- Risk/impact assessment
- Training or other initiatives to ensure compliance with policies
- Objectives or targets
- Monitoring and measurement
- Incident investigation and corrective action
Disclosure and Compliance Indicators
Disclosure and Compliance indicators assess whether companies are sufficiently transparent to investors about their ESG risks and management practices. Typically, they assess companies’ use of generally recognized practices, such as reporting using the Global Reporting Initiative structure and including the fulfillment of respective requirements (e.g. providing transparency on pay structures associated with ESG targets).
Performance Indicators
Performance indicators measure the effectiveness of policies, programs and management systems and are tracked yearly to show a trend over time. For example, the 'Carbon Intensity Trend' indicator tracks a company’s carbon emissions over time to provide information regarding the effectiveness of its carbon emissions reduction programs.
Sustainalytics Indicator Descriptions
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This indicator assesses a company's programmes to promote access to basic services such as energy, electricity, gas and water to poor or disadvantaged groups and of the quality of its reporting on such programmes, including details on the programmes and setting/ disclosing quantitative details.
This indicator assesses a company’s programme to promote access to health care equipment and services (excluding medicine). Access to health care measures include value-based pricing models, differential pricing models for low-income patients, product donations in developing countries and supporting voluntary licensing or waiving intellectual property rights.
This indicator assesses a company's initiatives to increase the use of renewable energy for its own operations and quality of the renewable energy programmes. The renewable energy sources considered include solar, wind energy, hydropower, ocean and geothermal, along with the mechanisms in place to support companywide renewable energy use. Consumption from bioenergy is considered only when generated from operational by-products.