This report shows public data only. Is this your organisation? If so, login here to view your full report.

FTSE Russell

Service Providers Framework 2019

You are in Research and Data Provision » Research/process level

Research/process level

RDP 02. Sources for research and/or rating

02.1. Indicate the types of sources you use for research and/or ratings of companies/sectors/geographies or similar. Tick all that apply.

02.2. Indicate how ESG factors are incorporated into your research and/or rating methodology

02.3. Describe how you define materiality and how this is captured in your research and/or rating methodology as well as final product.

          FTSE Russell’s ESG Ratings data model have an emphasis on materiality, whereby the most material ESG issues are given the greatest weight in determining a company’s ESG scores and overall rating.

Each company is assigned an Exposure (i.e. materiality) level for each of our 14 ESG Themes – from 0-3, corresponding to N/A, Low, Medium or High Exposure. The Exposure level is determined by the company’s industrial activities, where the company operates and its products. For example, a global Mining company operating in markets with higher environmental (e.g. water) stresses would have a "High" Exposure to the Water Theme. A Paper company would have a High Exposure to the Biodiversity Theme. This is a simple, rules-based system to ensure consistency in application.

Our ESG Ratings are calculated using an Exposure-weighted average, meaning that the higher the Theme Exposures, the better a company must manage the related issues captured by our Theme-specific indicators in order to achieve a higher Theme Score. Our ESG ratings process is summarised in RDP 2.4 (below).
        

02.4. Additional information. [OPTIONAL]

Additional information regarding RDP 02.1.

FTSE Russell uses data from different sources for different products - (1) ESG Ratings and Raw Data (2) ESG indexes.

(1) ESG Ratings and Raw Data

FTSE Russell's ESG Ratings data relies upon publicly disclosed information. Our primary sources of data are reports and other disclosures from companies. However, we will also use data from other sources such as governments and NGOs etc.

FTSE Russell's Green Revenues model is sourced from the audited financial statements, website and other public sources of each of the approximate 13,500 companies. We will accept information reported to us directly from companies (but our preference is for the information to be provided publicly).

(2) ESG indexes

FTSE Russell's ESG Ratings and Green Revenues data are used when constructing our ESG indexes. When additional ESG data is needed (i.e. ESG topics not covered by ESG Ratings / Green Revenues), we will source data from / partner with external research providers for index construction.

Additional information regarding RDP 02.3.

Summary of FTSE Russell's ESG Ratings process

FTSE Russell's ESG data model consists of four hierarchical levels for each company in the research universe.

(1) Indicators: There are over 300 indicators in the ESG data model that are applied to each company’s unique circumstances. 

(2) Themes: A comprehensive set of 14 ESG Themes covers key areas across the ESG spectrum. Themes are assessed for their relevance (materiality) to an individual company and then all indicators within the relevant Themes are scored based on the quality of a company’s management of the underlying issues. If a Theme has greater relevance to a company then they must demonstrate stronger management of the underlying issues within that Theme to achieve a higher score.

(3) Pillars: The 3 Pillars cover the core components of the ESG Rating (i.e. E, S & G). Pillars represent a cumulative, materiality-weighted score of the underlying Theme scores and as such also reflect the relevance of underlying issues to each company.

(4) ESG Rating: The final ESG Rating aggregates the Pillar scores into a single, numeric ESG Rating from 0-5. This Rating provides a measure of the overall quality of a company’s management of ESG issues.

Additional information on our ESG Ratings and data model is available here: http://www.ftserussell.com/financial-data/sustainability-and-esg-data/esg-ratings


RDP 03. Stakeholder input

03.1. Describe how you actively include input and information, wherever possible, from relevant stakeholders or interested parties, in the research process or in reaching assessment conclusions.

          Forthcoming
        

03.2. Additional information. [OPTIONAL]


RDP 04. Up-to-date assessment and ratings

04.1. Indicate how you ensure that your ESG assessment of companies/ sectors/ geographies or similar is up-to-date and that new information is incorporated or new assessments are conducted at reasonable intervals.

04.2. Additional information. [OPTIONAL]

The FTSE Russell ESG Ratings and Green Revenues data for each company is reviewed and refreshed annually.

All companies that are assessed by FTSE Russell in either our ESG Ratings or Green Revenues research processes are given the opportunity to review and respond to the data we have collected. Companies can review and comment on the data we have collected using an online portal. In addition, companies are able to contact FTSE Russell directly.


RDP 05. Balanced research and assessment

05.1. Indicate how you typically ensure a balanced approach to your research methodology and assessing/rating of companies/sectors/geographies or similar. Tick all that apply and explain your approach to each option.

Type of indicators

Explain your approach

          FTSE Russell's ESG research process is based on an objective, rules-based approach that enables us to capture a wide range of largely quantitative data points on each company assessed. Where we collect qualitative data (e.g. the existence of specific policies) this is based on clear rules, set out in our ESG Methodology.
        

Explain your approach

          We believe that it is equally important to have policies and strategies in place as it is to measure performance, as performance may be limited to the immediate action of the company whilst the overall structure may be relevant for a longer time period. 

We view that measuring actual performance is very important, however, we need to have sufficient relevant and comparable disclosure by companies before we assess performance. Therefore, the first step is to assess companies on their quality of quantitative data disclosure. Further, in some areas it is not possible to make a sensible performance assessment with the quantitative data, hence understanding the systems and controls of the company can be important.
        

Explain your approach

          For any quantitative data points that we cover, the general stance is to collect three years worth of data in order to be able to review trend within the company.

For some qualitative performance indicators we will assess both performance against peers and performance improvements over time.
        

Explain your approach

          There are currently 14 themes that are covered by FTSE Russell’s ESG model, which fall under the Environmental, Social, and Governance Pillars. 

The weight of E, S, or G may differ for each company based on each company’s business characteristics. 
For example, an agricultural company may have a greater environmental weight, whereas a financial service company may have less on environment but more weight on the governance pillar. This is driven by the rules-based Theme Exposures outlined in RDP 02.3 (above).
        

Explain your approach

          For the ESG assessments, we rely primarily on public disclosure by the companies themselves. We do not accept any internal private information. In the past we used a survey-based approach but from 2013 onwards we took the position that privately submitted data was less credible and from this point on we required companies to publish all information. Through this requirement we have catalysed improved corporate reporting. We also give additional credit for externally verified quantitative data.

In addition, we review news sources regarding controversies and allegations.
        

05.2. Additional information. [OPTIONAL]


RDP 06. Consistency and comparability

06.1. Describe the control processes in place to ensure quality of research.

          Quality control for FTSE Russell ESG ratings and Green Revenues methodology 

Please see RDP 03.01

Quality control for FTSE Russell ESG Ratings and Green Revenues data

FTSE Russell conducts regular quality control checks of the data submitted by research analysts (that are themselves peer-reviewed before submission). This is done in both automated and manual “spot-checking” fashion.  Errors detected or data which appear to be wrong are relayed to the analysts for immediate correction or further investigations. Indicator level verifications are ones where FTSE Russell verifies the consistency of one indicator across a random sample of the underlying dataset. All QC results are shared with the analysts and further actions taken.

In addition, every company is contacted to enable them to check the data that has been collected on them – to identify if there is information that is missing. The companies can only provide public information and it is in a controlled, web-based environment.

Quality control for FTSE Russell indexes

Quality assurance measures are applied during the index build and review processes, whereby historical index data is reviewed by the Research and ESG teams and then reviewed once again by the Quality Control team prior to being released into production.
        

06.2. Additional information. [OPTIONAL]


RDP 07. Emerging ESG issues and trends (Private)


RDP 08. Client use of outputs (Private)


RDP 09.


Top