Developing a Proprietary ESG Rating Framework for an APAC-Based Asset Manager

Systematically integrate ESG aligned with firm-level objectives and enhance credibility with key stakeholders.

Leading Australian Investment Bank

Sector-specific ESG rating framework covering 25+ sectors, 65+ sub industries, and 1,000+ companies.

• Proprietary ESG framework: The client required a specialized ESG rating framework that could facilitate cross-comparison of companies across various sectors.
• Relevant KPIs for assessment: The challenge lay in identifying sector/region-specific material risks and applicable qualitative and quantitative KPIs for each risk based on relevance and data availability.
• Data quality: Address data gaps, consistency, and credibility to enhance assessment quality and mitigate greenwashing risk.
• Systematically integrate ESG: Roll out framework systematically across coverage universe with minimal subjectivity.

Crisil adopted a comprehensive three-phased approach:

Develop materiality-Based Framework

• Sectoral Evaluation: We evaluated sectoral exposures of coverage universe and grouped by Sustainable Industry Classification System (SICS) - 65+ sub-industries.
• Identify Material Issues: We identified all material ESG issues for each sub-industry using established materiality-based frameworks.
• Customize for regional nuances: We tailored the framework to address region-specific nuances.

Identify and Aggregate Relevant KPIs across coverage universe

• Region-Specific KPIs: For every shortlisted issue across industries identified relevant quantitative region-specific KPIs based on data availability.
  
• Qualitative Insights: We integrated qualitative insights (strategy, commitments, partnerships, etc.) to complement quantitative metrics for a holistic assessment.
  
• Credible alternate data: Leveraged public data sets to address data gaps, integrate outside-in view and mitigate greenwashing risks.
  

Bespoke Rating Methodology

• Objective scoring: Developed a binary scoring framework across industries, covering disclosure quality, performance, and alternative data insights to reduce subjectivity.
• Sector-based weighting: Finalized ratings based on sector-specific issue weights across Environmental, Social, and Governance dimensions.
  
• We developed a ready-to-deploy rating methodology with minimal subjectivity.
  

• Comprehensive Rollout: We successfully rolled out the rating methodology to over 1,100 companies, covering the entire universe of interest.
• Ongoing Review and Updates: We established a systematic process for periodic reviews and updates of both the company-level assessment and rating framework to enhance the relevance of the ratings.
• Sector-specific reports: Developed sector-specific reports to identify potential sector-level themes and trends.