Proxy ESG Scores Methodology

Purpose

Why proxy scores exist

Integrum ESG scores companies directly from what they disclose: the documents each company publishes, with the Integrum ESG Platform updated within 10 days of new material data. Some companies publish too little ESG data to be scored in this way.

Many ESG ratings providers fill that gap with estimates whose methodology is not published. Investment firms asked us for a way to see those companies rated too, and some asset owners expect their managers’ ESG reports to fill gaps with proxy data. Proxy scores meet that need with a published, rules-based method, and every proxy is labelled so it is never confused with a score based on the company’s own data.

Toggle

The proxy scores toggle

Proxy scores are an option, not the default. Each portfolio has a Proxy Scores On? toggle in its header. Switched on, companies that disclose too little to be scored directly are rated using proxy scores and included in the portfolio’s results. Switched off, the portfolio’s scores are built only from companies scored on their own disclosures.

A fund’s own score always includes proxy scores for the holdings that need them, with the share of the fund shown using proxies stated alongside, as set out in our Fund ESG Ratings Methodology.

Method

How proxy scores are calculated

A proxy ESG rating is built from the average scores of companies in the same subsector, in the same region, following the same structure as a direct score:

1. Metric averages For every material metric, we take the average Awareness score and the average Performance score of companies in the subsector and region.
2. Metric score The two averages are averaged to form an overall proxy score for that metric.
3. Dimension scores The overall scores for each material metric are averaged to create a proxy score for each dimension: Sustainability and Governance.
4. ESG score The Sustainability and Governance scores are averaged to create the company’s overall proxy ESG score. The SDG alignment metrics form a standalone proxy Impact score.

Regional comparison threshold

The regional comparison requires at least seven companies. Where there are six or fewer companies in the subsector and region, global subsector data is used instead.

As with direct scores, users can customise the weightings of metrics and dimensions at subsector level.

Values

Proxy performance values

Alongside the 0 to 4 proxy scores, we calculate a proxy estimate of the reported value for each quantitative metric. The proxy performance value is the median of the values reported by companies in the same subsector and region.

For metrics scaled by revenue, such as GHG emissions in tCO2e per $ of revenue, we calculate a proxy for the scaled value and estimate the company’s absolute value by multiplying it by the company’s revenue, where the company is listed and its revenue is available. Users can also see the average raw values for any regional subsector, such as air pollutants emitted or waste generated per unit of revenue.

Definitions

Key definitions

Regions are broad by design. To generate a proxy rating for an auto parts company in Thailand, for example, there are too few Thai auto parts companies with enough ESG disclosure to give a meaningful average, so we use auto parts companies across Asia.

Worked examples

Worked examples

A proxy metric score

For an auto parts company in Asia, the average Awareness score on GHG Emissions across Asian auto parts companies is 2.4 and the average Performance score is 1.8. The company’s proxy score for the metric is (2.4 + 1.8) ÷ 2 = 2.1. The same calculation runs for every material metric, the metric scores are averaged into Sustainability and Governance proxy scores and those two are averaged into the overall proxy ESG score.

A proxy performance value

The median GHG emissions intensity of the company’s regional subsector is 120 tCO2e per $1M of revenue, and the company is listed with revenue of $500M. Its proxy emissions are 120 × 500 = 60,000 tCO2e.

These figures are illustrative.

Transparency

Labelling and transparency

Companies rated using proxy data are always clearly labelled on the Integrum ESG Platform, so users can see at once which ratings are based on the company’s own data and which on regional subsector averages. The Glass Box for any metric, for any company, states when proxy data has been used, as set out in our Company ESG Scores and Glass Box Methodology.

Proxy scores give an indicative measure of the ESG risk inherent in a company’s subsector and region. With the toggle on, a portfolio is unlikely to show data gaps, while every directly scored company remains rated on its own disclosures.

Proxy emissions follow the same median approach in our climate reporting, described in our TCFD Reporting and Climate VaR Methodology.

Related methodologies

• Integrum ESG Core Methodologies
• Integrum ESG Scoring Framework
• Company ESG Scores and Glass Box Methodology
• Consensus ESG Score Methodology
• Controversial Activities Methodology
• ESG Controversies and Sentiment 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
• ESG Screening Methodology
• SDG Impact from Operations Methodology
• Sovereign ESG Scores Methodology
• Temperature Score and Implied Temperature Rise Methodology
• SDG Revenue Alignment Methodology