ISS Launches Rating Service on Company Environmental and Social Disclosures, Including Labor, Stakeholder, and Society Reviews

February 09, 2018

This week, proxy advisory firm ISS unveiled its "Environmental & Social Quality Score," which provides a data-based analysis for institutional investors of company disclosures, providing two scores on a scale of one to ten—one for environmental disclosures and one for social disclosures that will be included in 2018 ISS proxy reports.  The analysis is based on eight different categories, four for each issue based upon the frameworks developed by the Global Reporting Initiative, Sustainability Accounting Standards Board, and the Task Force on Climate-Related Financial Disclosures.  Under social disclosures, ISS will analyze:
  • Human Rights, which includes management policies, ethical sourcing, and supply chain standards;
  • Labor, Health and Safety, which includes workforce diversity and equality, training and development, and compensation and benefits;
  • Stakeholder and Society, which includes business ethics and anti-corruption, motivation and accountability, lobbying and political advocacy, and medicine, health and nutrition; and
  • Product Safety, Quality, and Brand, which includes data security and privacy as well as ethical marketing and communication. 
The four categories for analysis on environmental issues will be management of environmental risks and opportunities, carbon and climate, natural resources, and waste and toxicity.  As with the ISS Governance QualityScore, not all data points will apply to all industries (ISS estimates about 240 data points per industry group) and companies are invited to regularly review and verify the data on which the scores are based.  Although many sophisticated investors do not use governance ratings per se, the analysis which underlies the data may be attractive in the E and S areas where it has been difficult for other services providing ratings, such as Bloomberg and Sustainalytics to develop reliable data.  With more investors signing the UN Principles for Responsible Investment, there is more demand than ever for reliable E and S information, and ISS is making a push to be a player in that space.