Assessing Qualitative Information

Environmental, Social, and Governance (ESG) performance assessment is a crucial aspect of
evaluating a company’s ethical and sustainable practices. By focusing on qualitative data, investors can gain deeper insights into a company’s ESG strategy and commitment to responsible practices.

Here are few ways how a company’s ESG performance is assessed based on qualitative data:

1. Review Company ESG Policies and Reports

Start by reviewing the company’s ESG policies, sustainability reports, and any other relevant
documentation. Look for the following:

• A clear articulation of the company’s ESG goals and objectives.
• Detailed descriptions of the company’s ESG initiatives and programs
• Evidence of the company’s commitment to ESG principles (e.g., adherence to international
  standards, such as the United Nations Global Compact)

Example: A company that publishes an annual sustainability report with thorough disclosures on its environmental, social, and governance initiatives demonstrates a strong commitment to ESG principles.

2. Evaluate Management’s Commitment to ESG

Assess the extent to which ESG is integrated into the company’s management and decision-making processes. Look for:

• Board-level oversight of ESG issues
• Integration of ESG considerations into the company’s risk management framework
• Executive compensation tied to ESG performance
• Regular ESG performance review and goal-setting at the executive and board level

Example: A company with a dedicated Chief Sustainability Officer (CSO) responsible for overseeing ESG initiatives and reporting to the CEO demonstrates strong management commitment to ESG issues.

3. Assess Stakeholder Engagement

Examine the company’s approach to engaging with stakeholders (e.g., employees, customers,
suppliers, regulators) on ESG issues. Look for:

• Regular communication with stakeholders on ESG topics
• Evidence of collaboration with stakeholders to address ESG challenges
• Responsiveness to stakeholder concerns and incorporation of feedback into ESG policies

Example: A company that has established a stakeholder advisory council to solicit input on its ESG strategy demonstrates a commitment to stakeholder engagement.

4. Analyse External ESG Assessments and Ratings

Review third-party ESG assessments and ratings, such as those provided by MSCI, Sustainalytics, or the Dow Jones Sustainability Indices. While these ratings are not purely qualitative, they can provide valuable context for your own qualitative assessment.

Example: A company with a high ESG rating from a reputable third-party provider suggests that its ESG performance is strong relative to its industry peers.

5. Examine Industry and Peer Comparisons

Compare the company’s ESG performance and commitments to those of its industry peers. Look for:

• Relative strengths and weaknesses in ESG performance
• Adoption of industry best practices and benchmarks
• Collaboration with industry peers on ESG initiatives

Example: A company that is a founding member of an industry-wide initiative to reduce greenhouse gas emissions demonstrates leadership on environmental issues.

6. Monitor ESG-related Controversies and Incidents

Keep track of any ESG-related controversies or incidents involving the company. Consider the
following:

• The nature and severity of the controversy or incident
• The company’s response, including any corrective actions taken
• The potential impact on the company’s reputation and ESG performance

Example: A company that addresses a labour rights controversy by implementing new supplier code of conduct requirements and increasing supply chain transparency demonstrates a commitment to resolving ESG issues.

Conclusion

By following these steps and analysing qualitative data, investors can develop a comprehensive understanding of a company’s ESG performance and commitment to responsible business practices.