ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc., today announced the launch of the new ISS ESG SDG Impact Rating available for an initial coverage universe of more than 6,500 companies, to be expanded on a going forward basis. The SDG Impact Rating provides a holistic metric of impact using the United Nations (UN) Sustainable Development Goals (SDGs) as a reference framework. The rating measures the extent to which companies are managing negative externalities in their operations across the entire value chain to minimize negative impacts, while at the same time making use of existing and emerging opportunities in their products and services to contribute to the achievement of the Sustainable Development Goals.
The new, holistic rating augments ISS ESG’s existing suite of solutions, to support investors seeking to align their investments to the Sustainable Development Goals, measure and report on the alignment of their portfolios to the SDGs and develop their own investment solutions based on specific themes such as biodiversity, climate, gender equality and health. The new SDG Impact Rating is the first of two new solutions ISS ESG will be launching this year to support SDG investment strategies. The second, a new SDG Impact Index, will launch in coming months.
A company’s SDG impact is measured thematically, following the SDG framework, as well as at an aggregate level. For each of the seventeen SDGs, a company’s impact is determined by three pillars – the company’s products and services, the company’s operational management and its involvement in and responsiveness to controversies. As a result, the SDG Impact Rating provides over 100 data points per company, allowing for granular thematic assessments, as well as aggregate impact measurements.
This Rating is delivered via ISS ESG’s proprietary DataDesk platform which allows for unrivaled customization of the solution’s granular products and services, operations and controversy scores, to suit an investor’s unique investment objectives.
“The ISS ESG SDG Impact Rating’s thematic breakdown of products and services, operational impacts and controversies for each of the seventeen SDGs is a unique market innovation, enabling investors to align their investments to the Sustainable Development Goals,” said Marija Kramer, Head of ISS ESG. “Moreover, the ISS ESG SDG Impact Rating’s aggregation model ensures that a company’s overall impact is based on those SDGs in which it, within its sphere of influence, can have the greatest impact. The rating is based on a holistic understanding of impact where it is acknowledged that companies can have both negative impacts, for example, by failing to mitigate negative externalities, and positive impacts by seizing opportunities in different SDG impact areas.”
Examining, for example, a portfolio with a thematic focus on SDG 3 – Good Health and Wellbeing — shows that more than 88% of companies with a significant contribution to this goal achieved it through revenues generated from pharmaceutical products and services. However, taking into consideration that impact is also derived from being a responsible corporate actor, relevant elements from operations, e.g., regarding product safety, quality and accessibility, as well as involvement in controversies are factored in the SDG Impact Rating. This holistic assessment shows a more nuanced distribution with only 38% of pharmaceutical companies achieving a significant positive impact and 46% with a limited positive impact on this particular SDG.
Looking at the entire universe of rated entities, a mere 5% of companies can be considered as having a significant positive impact on SDG 3, while an additional 45% of companies have a limited positive impact. Taking this holistic view to the overall SDG Rating level, the data also highlights that so far only 3% of all companies across all industries have a significant positive impact on the SDGs, followed by 23% of companies with an overall limited positive impact.