Describe how you define materiality and how this is captured in your research and/or rating methodology as well as final product.
We believe Social Responsibility impacts both tangible assets and intangible capital of a company. Therefore, we believe materiality has to be clearly assessed. Used in a restrictive sense, materiality can lead to ignoring ESG risks and to discard recognizable or significant accounting impact. Used in a dynamic way, materiality broadens the risk framework to factors that may affect stakeholders’ interests.
Within our framework of analysis, we therefore assess to which extend various factors of sustainability (ESG) are material for a company even if they are not analysed in the regular accounting framework, i.e if they can negatively or positively impact the performances, the capacity of creation of value, the accounts of a company.
The information we provide is build to focus on the most material aspect of the extra-financial performance of issuers: before we beginning rating a company, our in-depth approach is reviewed and customised by our sector-specialised teams. We recognise that the challenges faced by companies are not uniform. The sector within which a company operates, impacts the risks they face and the opportunities they may capitalise on. An easy example to illustrate this is the exposure from energy companies to stranded assets when carbon legislation increases. Our methodology is therefore customised per sector to reflect the specific materiality of ESG risks and opportunities for a defined sector.
Vigeo Eiris has 36 sector-specific customised rating models and on average, 20-25 criteria are analysed per sector for each company. For example, for the pharmaceutical and biotechnologies sector, Vigeo Eiris has 24 drivers activated.
The ‘weighting’ assigned to each driver to indicate its materiality goes on a scale from 0 to 3 and is based on:
• The nature of the impact of the CSR issue on the sector’s stakeholders (e.g. employees, customers, etc.)
• The exposure of stakeholders to that impact
• The risks (e.g. legal, operational, etc.) run by companies in the sector that do not adequately manage this impact.
imug rating's approach to the rating of financial institutions and bank bonds is based on materiality. In an update of the methodology and ciriteria in 2017 various international standards were taken in account, including GRi, SASB and others. The approach is based on the belief, that different exposures of financial institutions have different material ESG issues to cover. For example an international Financial Institution involved in Investment Banking has other material issues than a German-based Mortgage Lending Company.
See also our Position Paper on bank bond rating (also avaivable in English): https://www.imug.de/imug-rating/imug-nachhaltigkeits-research/?L=0