Measuring the sustainability and impact of companies can be a tricky business; data sources often lack detail and clarity. However, as in-depth sustainability data steadily becomes available, investors’ overall portfolio sustainability score could become more meaningful.
One of the more noteworthy among the recent offerings in ESG data is the Dow Jones’ Sustainability Data Feed, launched in January 2022. Co-developed alongside ESG data-service, advisory, and technology provider Arabesque S-Ray, the feed seeks to provide transparent ESG scores and sentiment on more than 6,000 public companies listed in North America, Europe, and Asia.
The Dow Jones model offers a comparatively real-time picture of a given company’s sustainability, combining company disclosures with relevant news. The result is an aggregate ESG score on the company, which asset managers can then use to build more sustainable investment portfolios.
Digging into Data Dimensions
The Dow Jones model is intended to give deeper insight into the financial effects of ESG practices on companies by aligning with Sustainability Accounting Standards Board (SASB) standards.
The SASB focuses on the sustainability factors that it deems most likely to materially impact companies’ financial condition or operating performance. It groups sustainable corporate activities into five dimensions:
- Human capital
- Social capital
- Business model and innovation
- Leadership and governance
The dimensions are further broken down into a total of 26 categories; for instance, the environment dimension houses six categories, including greenhouse gas emissions and ecological impacts; the social capital dimension includes seven categories, such as human rights, community relations, and data security.
Embracing a Hybrid Methodology
Dow Jones’ model uses an “outside-in, inside-out” hybrid methodology. Inside-out inputs are sourced externally, disclosed by the public company. This is combined with outside-in information—news on a given company from Factiva, the Dow Jones information and research tool.
Daily news sentiment and scoring updates are meant to allow asset managers to make sustainable investment decisions with information that is more timely and transparent than self-reported data alone. In addition to enabling asset managers to more effectively manage portfolios, Dow Jones says the model should also help investment firms stay ahead of regulatory developments.
Pursuing Growing Demand for ESG Data
The Dow Jones move is a reflection of the growing demand for ESG data and research from asset managers. In November 2020, investment research and data services provider Morningstar announced it would integrate ESG factors into its analysis of stocks, funds, and asset managers. Earlier that July, it had acquired ESG ratings and research provider Sustainalytics. Morningstar currently uses qualitative and quantitative data to assign ESG risk ratings to companies under that brand.
Dow Jones says it will initially provide its sustainability data via a feed for institutional investors, which they can then integrate into portfolio management and strategy. They can also choose to add a feed of ESG-related media coverage from thousands of global sources that help drive score changes.
Accurately identifying companies with high ESG risk and low ESG performance helps ensure that portfolios give more weight to companies with outstanding results on sustainability measures. In turn, investors can better target and measure impact—especially when combined with additional tools such as new ESG certifications designed to help investors target impact.