Integrum ESG Scoring Framework

Framework

What our ratings measure

Total ESG Risk is our overall company rating. It assesses how well a company manages the sustainability and governance issues that are financially material to its business, and it is built from two dimensions that carry equal weight.

Sustainability (E+S)

The Sustainability dimension covers the 26 issue categories in the SASB Standards, now maintained by the International Sustainability Standards Board (ISSB). A company is scored only on the categories that are material to its subsector, which ranges from 2 to 11 categories depending on the subsector. Each company is assigned to one of the 77 industries in the Sustainable Industry Classification System (SICS), which sets both its material issues and the peers it is compared with.

Governance (G)

The Governance dimension applies nine corporate governance metrics from the Minerva Analytics framework to every company, covering board structure, oversight, incentives, accountability and shareholder protections.

Ratings reported alongside Total ESG Risk

• Climate Risk assesses Climate Governance, Climate Strategy, Climate Risk Management and Climate Metrics & Targets under IFRS S2, with the four metrics weighted equally.
• Impact Risk assesses six themes from the Cambridge Impact Framework: Basic Needs, Wellbeing, Decent Work, Resource Security, Healthy Ecosystems and Climate Stability.
• Consensus aggregates assessments from external ESG rating providers and other sources, powered by CSRHub, to show how a company is viewed across the market. Our Consensus ESG Score Methodology sets out how it is built.

None of these three feeds into Total ESG Risk. Company-level results for all of them are available through Company Intelligence.

Our ESG Rating Methodology Disclosure refers to Total ESG Risk as the ESG Grade and to Impact Risk as the Impact Score.

Metric scores

How each metric is scored

Every material metric is scored from 0 to 4. Each metric receives an Awareness Score, and quantitative metrics also receive a Performance Score.

What each score means

For quantitative metrics, the Awareness and Performance Scores are averaged into a single metric score. For example, a company with an emissions policy, detailed emissions disclosures and a reduction target scores 4 for Awareness; if its emissions intensity places it in the third quartile of its subsector, it scores 2 for Performance and 3 overall on that metric. A company that does not report the figure a metric needs scores 0 for Performance. Some governance metrics use fixed boundaries in place of quartiles, for example the vesting period of long-term incentive plans.

Grades

From scores to grades

Metric scores are combined into Sustainability and Governance scores on the same 0 to 4 scale. By default, every material metric carries equal weight within its dimension, because the ISSB does not treat any issue it identifies as material for an industry as more important than another. The overall ESG score is the average of the Sustainability and Governance scores, so each dimension carries 50%.

Governance therefore accounts for half of the overall score. The split between environmental and social issues in the other half depends on which SASB categories are material to the subsector. On average, environmental issues carry just under a quarter of the overall score and social issues just over a quarter.

Grade bands

Scores are converted into A to E grades using standard deviation bands around 2, the midpoint of the 0 to 4 scale, which corresponds to a C.

Using standard deviation bands in place of simple cut-offs means grades reflect genuine differences in performance and are less distorted by uneven industry distributions or disclosure practices. Climate Risk and Impact Risk are built from their own metrics on the same 0 to 4 scale and graded separately.

Funds and portfolios

From company scores to fund and portfolio grades

Fund and portfolio scores are built from the scores of the underlying holdings, looking through any fund held in a portfolio to the companies it holds. For example, if BP makes up 20% of a fund and that fund makes up 10% of a fund of funds, BP carries a look-through weight of 2% in the fund of funds.

• Weighted average: a fund’s overall ESG score is the weighted average of its holdings’ company and sovereign scores. A 10% holding contributes twice as much as a 5% holding.
• Missing scores: only holdings with an available score are included, with their weights rescaled to 100%, so a missing score is never treated as zero.
• Proxy scores: a fund’s own score includes proxy scores for holdings that need them. A portfolio score includes them only when the client switches proxy scores on. Our Proxy ESG Scores Methodology explains how they are calculated.
• Short positions: a company held short is scored as 4 minus its company score, weighted by the absolute size of the position. The standalone company assessment is unchanged.
• Unweighted scores: where an unweighted portfolio score is shown, each scored holding has equal influence, whatever its position size.

Fund and portfolio grades

Funds and portfolios use grading bands half as wide as the company bands, centred on the same midpoint of 2. Averaging holdings tends to bring scores closer together, so narrower bands help distinguish funds and portfolios that would otherwise fall within the same grade.

Grades are assigned to the combined numerical score, not averaged from letter grades. A fund or portfolio can therefore receive an A even when most of its holdings are graded B. Our Fund ESG Ratings Methodology sets out fund scoring, coverage and look-through in full.

Our approach

Why this approach

Many ESG ratings reach investors as a single headline figure, with limited visibility of the data and judgements behind it. That makes a rating hard to explain to clients, hard to defend to a regulator and hard to challenge when it looks wrong. Our framework is built so that every grade can be explained from the bottom up.

For more on what investors pay for with legacy ratings and what to look for in an alternative, read The Real Cost of Poor ESG Ratings.

Related methodologies

• Integrum ESG Core Methodologies
• Consensus ESG Score Methodology
• Controversial Activities Methodology
• ESG Controversies and Sentiment Methodology
• Company ESG Scores and Glass Box Methodology
• Private Markets ESG Data Capture Methodology
• EDCI Data Collection and Reporting Methodology
• SFDR Classification and PAI Methodology
• EU Sustainable Investment Audit Methodology
• EU Taxonomy Alignment Methodology
• TCFD Reporting and Climate VaR Methodology
• Portfolio Footprint Calculator Methodology
• Fund ESG Ratings Methodology
• Golden Retriever Data Extraction Methodology
• Heatstrips and Peer Benchmarking Methodology
• Proxy ESG Scores Methodology
• ESG Screening Methodology
• SDG Impact from Operations Methodology
• Sovereign ESG Scores Methodology
• Temperature Score and Implied Temperature Rise Methodology
• SDG Revenue Alignment Methodology