伦敦证券交易所集团2026ESG评分体系- Introducing the LSEG ESG Scores

Whitepaper

IntroducingtheLSEGESGScores

Authors

CharlesDodsworth

SeniorResearchLead,SustainableInvestmentResearch

Billie-LouiseSchlich

SeniorAnalyst,SustainableInvestmentResearch

EdmundBourne

ResearchLead,SustainableInvestmentResearch

JaakkoKooroshy

GlobalHeadofSustainableInvestmentResearch

Contents

25yearsofsustainablefinanceinnovationatLSEG 3

ESGScores–Huh yeah...whatisitgoodfor?....................................5

CanESGscoresbeatthebenchmark? 6

IntroducinganewmodularsetofLSEGESGScores 7

ConstructingThemeScores 8

CalculatingtheLSEGESGScores 10

AnalysingtheLSEGESGScores 13

LSEGESGScoresthroughafactorlens 15

WhyanLSEGESGScorePlus? 17

DesignfeaturesoftheESGScorePlus 18

Appendix1.ComparisonwithHeritageRefinitivand

FTSERussellESGScores 20

Appendix2.ConstructingLSEGESGThemeScores 22

Appendix3.Determiningmaterialityweights 28

Appendix4.LSEGESGScores:Additionaldataandanalysis 33

Appendix5.LSEGESGPlusScore 35

IntroducingtheLSEGESGScores3

25yearsofsustainablefinanceinnovationatLSEG

LSEGhasarichheritageofdevelopingdata,index,andanalyticssolutionsfor

sustainablefinanceandinvesting.Thisstretchesback25yearstothecreationoftheFTSE4Goodindexseries–oneoftheworld’slongest-runningsustainableindexfamiliesandaninstantlyrecognisableyardstick–andtothefoundingofAsset4in2003,subsequentlyacquiredbyLSEGin2009.

Sincethen,sustainablefinanceandinvestinghasexperiencedtransformative

growth–spreadingaroundtheglobeandtoeveryassetclass.Whiledefinitionsvary,thesizeofthemarketisnowassessedinthetrillions.LSEGdatashowsthatthegreenbondsmarketalonenowexceedsUS$3trillion,1greenequitieshave

surpassedUS$5trillion,2andoverUS$3trillioninassetsareinvestedacrosssustainablemutualfundsandETFs.3

Assustainablefinanceandinvestinghasexpanded,ithasalsobecome

increasinglyregulated.Thisincludestheestablishmentofflagshipcorporate

disclosurestandardsandgreentaxonomies,aswellasrulesforsustainability

labelledfundsandforprovidersofsustainableinvestmentdata,scoresand

ratings.TheEuropeanUnionhasspearheadedmanyoftheseinitiatives,but

significantregulatoryframeworkshavealsobeenestablishedintheUK,CanadaaswellasintheAsiaPacificregion,includingAustralia,Japan,China,andmanyASEANeconomies.

Thegrowthinsustainablefinanceandinvestinghasreshapedpracticesalong

theentireinvestmentchain,withmanyassetmanagersandbanksdeveloping

sophisticatedsustainability-focusedanalyticalandstewardshipcapabilitiesthat

canbeanimportantdifferentiatortowinbusiness.Largecompaniesarealsonowdedicatingsubstantialresourcesandcarefullyadjustingpoliciesanddisclosurestoearnandretainfavourablesustainabilityassessments.Sucheffortsoftenalsoextendtomanagingtheirnetworkofsuppliers,pushingmid-sizedandsmaller

firmstoprovideatleastaminimumlevelofsustainabilitydisclosuresanddata.

Assustainablefinanceandinvestinghasmaturedanddiversified,sohasthedataandanalyticaltoolboxenablingit.Solutionshaveevolvedfromsimpleactivity-

basedscreeningandtop-lineESGscoresorratings(seeBox1)coveringafew

hundredcompanies,toadizzyingarrayofdataandmetricsdesignedtocapturedifferentaspectsofsustainabilityperformanceandcoveringtensofthousandsofassetsandcompanies,fromclimatetoproductsafety,andcontroversialconducttocorporategovernance.

Againstthatbackdrop,thisreportrevisitsametricthathasbeencentraltothedevelopmentofsustainablefinance:ESGscores.Itexplainswhyandhow–inamulti-yearresearcheffort–wehavere-engineeredESGscoresbottom-uptoprovideinvestorsandotheruserswithanewsolutionfortoday’ssustainable

investmentenvironmentthatplacesevergreateremphasisonrobustandtransparentmethodologiesanddata-driventooling.

Figure1.25yearsofsustainablefinanceinnovationatLSEG

2020

2004

LaunchofLSEGESGScores

2001

FTSE4GoodIndex

launched

2006

PRIfoundingsignatory

2009

Acquired

Asset4–ESGdataprovider

2016

GreenRevenuesdatamodel&FTSEGreenRevenues

IndexSerieslaunched

2019

LondonStockExchangeGreenEconomyMark

launched

2008

FTSEEnvironmentalMarketsIndices&

ClassificationSystemlaunched

2010

AcquiredPointCarbon–

carbonmarketsdataprovider

2017

TransitionPathway

Initiative(TPI)launch

withFTSERussellas

afoundingdatapartner

2019

AcquiredBeyondRatings–fixed

incomeESGdataprovider

Launchedfirstsovereignbondclimate

indexseries–FTSEClimateRisk-

AdjustedGovernmentBondIndexseries

2020

LaunchedtheFTSETPIClimate

TransitionIndex

2021

Acquired

RefinitivESGdataand

analytics

2023

LSEGClimateData

Package&RegulatorySolutionslaunched

2022

LondonStock

ExchangeVoluntaryCarbonMarkets

launched

2025

LaunchedTPIMQ

Scorespoweredby

LSEGData&Analytics

2024

Launched

Sustainability

IntelligenceplatformwithBursaMalaysia

2026

LaunchofLSEGSustainability

RatingsandDatawithnewESG

ScoresPlus

1LSEG,2025,Greendebtmarketpasses$3trillionmilestone

2LSEG,2025,LSEGGreenEconomyReport-Investinginthegreeneconomy2025

3LSEG,2025,GlobalResponsibleInvestmentsFundMarketStatisticsforOctober–LipperAnalysis

IntroducingtheLSEGESGScores4

Box1.WhatareESGscoresandratings?

Whilesomeacademicorregulatorydefinitions4ofESGratingsandscoresencompassabroadspectrumofnon-financialdatasetsusedinsustainableinvesting,practitionerusageofthetermtendstobenarrower.Users

typicallyrefertoaspecificsetofdataproductsthatarebrandedasESGscoresorratingsandshareasetofcommonkeyfeatures:

(1)Holisticinscope:ESGscoresaredeliberatelydesignedtocovera

broadrangeofESGissuesacrossdiversesectorsasopposedto

scoresfocusedonspecificissues,suchasclimateortransitionscores,orsectorbenchmarks.

(2)Ultimatelyaggregatedtoasingleoverallscore:ESGscoresare

compositeindicatorsbasedonacascadingaggregationofsub-

scores.Suchsub-scorestypicallyincludeseparateEnvironmental,

Social,andGovernancescoreswhichinthemselvesareaggregatedfromissueortopicscores.Theseinturnarebasedonindividual

indicatorsormetrics.

(3)Primarilybasedondatadisclosedbytheassessedentity:Thebulk

ofinputdatausedintheconstructionofESGscoresconsistsof

quantitativeandqualitativedatapubliclydisclosedbycorporatesin

sustainabilityreporting.Insomecases,dataprovidersturntosurveysorestimateddatatofilldisclosuregaps.Disclosure-baseddataisalsooftensupplementedoradjustedthroughsecondarydatafromother

sources(suchasmediaandNGOreportsoncontroversies,thematicexposures,ordataonregulatoryfinesetc.),whichinsomecasesmayalsobesoldasseparatedataorresearchproducts.

4

Regulation-EU-2024/3005-EN-EUR-Lex

definesESGratingsasanall-encompassing

termforbothESGscoresandopinions,withthefirstonebeingapre-establishedstatisticaloralgorithmicsystemormodelandthelatterdirectlyinvolvingaratinganalystintheprocess.

5IOSCOdelineatesbetweenESGRatingsandScores;IOSCO,2021,

Environmental,Social

andGovernance(ESG)RatingsandDataProductsProviders-FinalReport

:“ESGscoresusuallyresultfromquantitativeanalysiswhereasESGratingsareproducedusingboth

quantitativemodelsandqualitativeanalysisandareaccompaniedbyanalystreportstoexplaintheratings.Onthatbasis,ratingsmaythereforeincorporateanelementofanalyticaljudgementoropinion.”

Figure2.TheESGscoringprocess

Corporate

Governance

Water

Tax

Transparency

Waste

Climate

Change

Data

Security

Health&

Safety

Supply

Chain

Biodiversity

Human

Rights

010

1111

010

0101001

11111101

0101010

0101001

11111101

0101001

Runscoring+weighting

algorithm

Collect

structured

metrics

10010

11011

10100

0

1

0

0

1

0

Organise

into

themes

ESGScore

Gather

inputdata

010

1111

010

10010

10010

11011

ESGratingsaresimilartoESGscores,howeverratingsadjusttheresultsofquantitativemodelsthroughqualitativeanalysisandanalystopinionsand

aretypicallyaccompaniedbyanalystreportstoexplaintheseratings.5ESGscoresaredefinedasbeingentirelyrule-basedwithoutsubjectivedecision-makinginthecalculationofindividualassessments.

WidelyusedESGscoresaremostlymaintainedbymajordataprovidersthatalsomaintaintheunderlyingESGdatasets,involvingthecollectionof

millionsofdatapointstoassesstensofthousandsofentities.Insomecases,institutionalinvestorsorbankshavedevelopedtheirown,proprietaryESGscores,usuallybasedoncombiningdataprocuredfrommultipledifferentdataproviderswithinternalsources,ratherthanprimarydatacollection.

IntroducingtheLSEGESGScores5

ESGScores–Huh…yeah…whatisitgoodfor?

ESGratingscanbeausefulsourceof

informationforinvestment,riskmonitoring,andstewardshipactivities;however,insufficient

transparencyaboutkeydesignchoicesandmethodologiescurrentlylimitstheirvalue.

NorgesBankInvestmentManagement6

ESGscoresandratings(seeBox1fordefinitions)areamongtheoldest,best-known,andmostwidelyuseddatasetsinsustainableinvesting.Yettheyarealsothemostcontestedandhaveattimesattractedstrong

criticism–withdetractorsvariouslyarguingthatESGscoresenablecorporategreenwashingorseekto

imposeaprogressive,norms-basedagenda.

Nonetheless,financialinstitutionscontinuetoprocureESGscoresandratings,oftenfrommultipleproviders,atsignificantcost–notonlytomitigatethepotentialinputdataandmethodologicalshortcomingsofany

singleprovider,butalsotoaccesstheunderlyingdataandcombinetheseinputsintotheirownproprietary

ESGscoringframeworks.

Evensupportiveobservershavepersistentlyvoicedconcerns,withsomehighlighting‘aggregate

confusion’7onESGscoresandratings,despitesuchusersfindingvalueintheunderlyingdata.Thishas

beenfuelledbymaterialdivergenceinscoresacrossmajorproviders;8thesourcesofwhichareoften

difficulttoascertainforusersduetodifferentdatasourcesandopaquescoringmethodologies,andaccusationsofpotentialconflictsofinterest.9

Whatthenexplainstheapparentcontradiction

betweenunlovedscoresandratingsandubiquitous

usagebyinvestorsandthebroaderfinancialindustry?Partoftheansweristhattheyhavebecomedeeply

embeddedininstitutionalworkflows,providingthe

datainfrastructurerequiredtoreportoncommitmentsininvestmentmandates,tomeetlabelledfundcriteriaandtounderpinstewardshipactivities.

Beyondthis,investorsultimatelycontinuetouseESGscoresbecause–despitetheirinherentlimitations

–theyofferdifferentiated,decision-usefulinsightsthatinvestorscannotreadilyobtainthroughother

means.Forinvestorsthequestionislesswhether

toditchthemaltogether,buthowtoleveragetheirstrengthsalongsideothertoolsandhowtomitigatetheirweaknessesmosteffectively.Specifically,theyofferinvestors:

1)Aneffectivetooltoidentify&monitorextra-

financialblindspots:ThestrengthofESGscoresliesinprovidingasimple,intuitive,ifimprecise

catchalldatapointacrossdisparatesustainabilityissuesthatcanbecomefinanciallymaterial.

Thescoressystematicallydistilavastrangeof

unstructured,ambiguous,andincompletedata

onnon-financialperformance,commitments,

andtargets,intoscoresthatcanbeusedfor

monitoringanddecision-making.Thisenables

investorstoeffectivelyandefficientlyintroduceabroadsetofsignals–fromboardindependence

andenergyefficiencytolabourrelations–into

theinvestmentprocess,whichontheirownwouldrarelymakethecut.

2)Ausefulproxyforcorporateculture&managementquality:ApproachestoESGissuescanshedlight

onacompany’sattitudetohumancapitaland

operationalexcellence,aswellasitsappetitefor

reputationalandregulatoryrisk10Inotherwords,

ESGscoresprovideacrudebutusefulproxyfor

keyintangibleassets–corporatecultureand

managementquality–thatareotherwiseveryhardtomeasurebutcriticaltoacompany’slong-term

performance.

3)Aversatiledatatoolsupportinganalysisat

scale:ESGscoresarewell-suitedtoincreasingly

data-driveninvestmentprocesses,whereglobal

portfoliosoftenspanthousandsofcompanies.

Theirsector-agnosticdesignsetsthemapartfrommanyothersustainableinvestmentdatasets–withscoresemphasisingthemostmaterialissuesin

eachsectortoproduceabalancedcomparable

score.Thismakesthemaversatiletoolforarangeofusecases,fromearly-stagescreening,ongoingmonitoring,stewardshiptargeting,portfolio

comparisonsorindexinvesting.

6NorgesBankInvestmentManagement,2024,

ESGratings-OurView

7Berg,Kolbel&Rigobon,2022,

AggregateConfusion:TheDivergenceofESGRatings

’

8SeeFigure9,pg.48–GPIF,2024,

SustainabilityInvestmentReport

9SeeforexampleFigure8–FinancialConductAuthority,2025,

ResearchNote:

UnderstandingtheUKESGRatingsMarket:FindingsfromOurSurveys

10GoldmanSachs,2018,‘

TheEmergingESGToolkit:PromisesandPitfalls

’

IntroducingtheLSEGESGScores6

CanESGscoresbeatthebenchmark?

AlthoughtheuseofESGscoresisrarelyfocused

onalphageneration,therelationshipbetweenESG,

corporatefinancialperformance,andinvestorreturnshasbeenextensivelystudied.Thisincludesboththeacademicandprofessionalliterature–includingin

multiplemeta-studiescoveringthousandsof

papers11,12,13Despitetheseefforts,thereisnobroadconsensusonwhetherESGintegrationsystematicallyimprovesordetractsfromreturns.

ProponentsofESGinvestingarguethatthe

incorporationofsuchfactorsintoinvestment

strategiescanboostfinancialreturns.KeystudieshaveshownthatfirmswhomanagematerialESGissues

outperform,14andthatthisoutperformanceisalso

exhibitedinESGscoresorratingsthatincorporateamaterialitylenswhenkeyfactorsarecontrolledfor15Severalmeta-studiessupportthis,withresearchfromNYUSternfinding58%ofstudiesshowapositive

relationshipbetweenESGandfinancialperformanceand8%anegativerelationship16

Otherscounterthatsuchresultsareoftenhardto

replicate;andaresensitivetochangesintheinvestmentuniverse,timeperiod,andanalyticalspecification17

Further,papershavearguedthatoutperformanceis

drivenbycorrelationswithotherinvestmentfactors

andthatsimilarportfolioreturnscouldbeachievedbyexposuretotraditionalfinancialfactors18,19

Whileadefinitiveresolutiontothisdebateremains

unlikely,webelieveESGscoresarebestconsideredasaninformativeinvestmentsignalandriskmanagementtool,ratherthanasourceofpersistent‘freealpha’.

Muchlikeotherdatatoolsunderpinningconventional

fundamentalanalysis,ESGscorescanaddvaluewhenusedaspartofabroad,integratedinvestmentprocess.Inparticular:

–Scoresarerelativelystableovertime,withlow

ornocorrelationtomostcommonequityfactors(seeSectionESGScoresthroughaFactorLens).

–Long-runningESG-basedindexfamilies–suchas

the25-yearFTSE4Goodseries–offermorereliablereal-worldevidencethansimulatedbacktests.

–Althoughtheseindicesdeviatemeaningfullyfromtheirparentbenchmarksinterms

ofconstituentsandindexweights,theircumulativelong-termperformancetendstotrackclosely.Annualisedreturnsfor

thepast10yearsforexampleshow0.8%outperformancefortheFTSE4Good

All-World,201.06%outperformanceforthe

DowJonesBest-in-ClassWorldIndex,21and

0.08%underperformancefortheMSCIWorldSelectionIndex22relativetotheirbenchmarks.

–AsshowninFigure3,thisrelativeperformanceiscyclical,mirroringthepatternseeninstyle

factors:multi-yearperiodsofoutperformancearetypicallyfollowedbyextendeddownturns.

11Atzetal.,2022,

DoesSustainabilityGenerateBetterFinancialPerformance?Review,Meta-analysis,andPropositions

12Whelanetal.,2021,

ESGandFinancialPerformance

13Friede,Busch&Bassen,2015,

ESGandFinancialPerformance:AggregatedEvidencefromMorethan2000EmpiricalStudies

Figure3.Relative12mrollingperformanceoftheFTSE4GoodDevelopedvs.theFTSEAll-WorldDeveloped,2001-2026

Rolling12monthperformance,FTSE4GoodDeveloped

minusFTSEDeveloped

8%

6%

4%

2%

0%

-2%

-4%

-6%

Jun-03

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Jun-23

Jun-24

Jun-25

Source:FTSERussellindexdata,totalreturn(USD)indexvalues

14Khan,Serafeim&Yoon,2016,

CorporateSustainability:FirstEvidenceonMateriality

15Geise&Shah,2025,

ESGRatingsinGlobalEquityMarkets:ALong-TermPerformanceReview

16Whelanetal.,2021,

ESGandFinancialPerformance

17SeeforexampleOECD,2020,

ESGInvesting:Practices,ProgressandChallenges(EN)

,“Whatwefindisaverydifferentresult,mainlyduetodifferentproviders’methodology,investmentstrategies,regionsandtimeframes.”

18Ahn,Patatoukas&Skiadopoulos,2024,

MaterialESGAlpha:AFundamentals-BasedPerspective

19Bruno,Esakia&Goltz,2021,

“HoneyIShrunktheESGAlpha”:Risk-AdjustingESGPortfolioReturns

20DatafromFTSERussellasat25/02/2026.FTSE4GoodAll-WorldIndex14.32%annualisedtotalreturnover10yearsvs.13.52%fortheFTSEAll-WorldIndex.

21Data

fromS&PG,asat25/02/2026.DowJonesBest-in-ClassWorldIndex(formerlyDJSWorldIndex)14.23%annualisedtotal

returnover10years

,vs.13.17%fortheS&PGlobalBroad-MarketIndex.

22DatafromMSCI.comasat25/02/2026.MSCIWorldSelectionIndex,formerlytheMSCIESGLeadersIndex,13.78%annualisedtotalreturnover10yearsvs.13.86%fortheMSCIWorldIndex.

IntroducingtheLSEGESGScores7

IntroducinganewmodularsetofLSEGESGScores

Buildingon25yearsofexperience,LSEGhasundertakenarigorousmulti-yearresearchprocesstoredesignandunifyitsESGscoringmethodology.ThenewlylaunchedLSEGESGThemeScores,LSEGESGScoresandtheLSEGESGScoresPlusprovideasetofrobust,research-drivenquantitativescorestointegratewide-ranging,non-financialinformationwithininvestmentprocesses.Thescores’modulardesignallowsthemtobeusedatthreekeylevelstocatertoawidevarietyofusersandusecases.

LSEGESGThemeScoresLSEGESGScoresLSEGESGScoresPlus

ESG

Climate

Transition

Energy&

ResourceUse

Biodiversity

Labour

Relations

Waste&

Pollution

WaterUse

Health&

Safety

HumanRights&Community

Board&

Management

Tax

Transparency

Conduct&

Anti-Corruption

Shareholder

Rights

TheLSEGESGThemeScoresassessthepolicies,systemsandprocesses

bywhichacompanymanagesEnvironmental,SocialandGovernanceriskswithinitsoperationsanditssupplychain.Scoresareonanordinal0-5scale.

EachThemeScoreiscarefullycuratedtoprovideadifferentiatedviewofcorporateperformanceateachlevelforportfolioanalysisorconstruction.

TheLSEGESGScorescombinetheThemeScorestoproducea

consolidatedviewofcorporateESGmanagementqualityfrom0-5,aswellasEnvironmental,Social,andGovernancepillarscores.

Themeweightsaredrivenbyatransparentmaterialitymatrixthatdrawsonkeystandardsandcorporatedata.

TheLSEGESGScoresPlusmodelisbasedontheLSEGESGScores,

towhichcomplementaryinformationisaddedthatprovidesadditional

insightondifferentviewsofESGperformance.ThePlusScoresaddtwo

dimensions:arisk-relatedview(consideringsovereignESGriskandESG

controversies)andanimpact-relatedview(consideringgreenrevenuesandESGdebtissuance).

IntroducingtheLSEGESGScores8

ConstructingThemeScores

Figure4.ThefivekeystagesinconstructingeachofLSEG’s12ESGthemes

D.Normalisetoscale

Themescoresareasystematicaggregationof

betweensevenand24qualitativeand

quantitativeindicatorsintoan0-5ordinalscale.

VariationsinthematurityofESGthemes(see

Figure7)requirecarefulcalibrationtoproduce

usabledistributionsforeach,suchthatcompaniesmustmeetprogressivelymoreindicatorsto

achievehigherscorelevelsinmaturethemes

(e.g.ClimateTransition,ShareholderRights,andLabourRelations)andfewerinthosemore

E.Addscoringcaps

EachthemescorealsoincorporatesacappingmetricthatareindicativeofadvancedESGpracticestohelptomitigategreenwashingrisks.

Companiescannotscoreabove3withoutmeetingthesecapping

indicators,ensuringthattop-tierscoresreflectbothsubstantive

quantitativeperformanceandadherencetowidelyrecognised

governanceandstrategypractices,ratherthanjustextensivereporting.Forexample,acompanycannotscoreabovethreeonHealth&Safetyiffatalitieshaveoccurredinthepasttwoyearsinitsoperationsorthe

companydoesn’tdisclosefatalities.Similarly,inthecaseofEnergy&Resources,companiescanonlyreachscoresabove3iftheyhavesetquantifiedtargetstoreducetheirimpacts.Thisresultsin7%ofall

companiesbeingcappedat3acrossthemesonaverage(seeAppendix2,Figure19).

C.Assessperformance

Whereavailable,companiesarealsoassessedontheirperformanceagainstkeyquantitative

indicatorsintenofthetwelvethemes–either

againstsectorpeersoragainstglobalstandards–ensuringthatscoresrecognisethose

demonstratingleadingpractices.

A.Selectthemes

LSEG’sthemeswereselectedbasedonapeer-reviewedanalysisoftheESGtopicsandissuescoveredbothbymajordata

providersandstandardsetters.23This

foundthatthoughtheirlabellingand

structureoftendi仟erwidely,ESGtopiclistsareultimatelyrelativelysimilarincontent.LSEGthemeswereidentifiedbyfurther

refiningthislist,focusingonthosethemeswiththestrongestdataavailabilityand

cross-industrycomparability.

B.Selectindicators

Eachthemeisassessedbasedonindicatorschosenthroughasystematicreviewofthe

availabledataincludingalignmentwith

reportingstandards,qualityofdisclosure,

andabilitytoprovidedistinctinsightwithoutduplicatingothermeasures.24Thisapproachprioritisesquantitativemeasuresandthe

mostrelevantqualitativemetrics.25

1Standardsalignment

2Metricquality

ESG

3Dataavailability

ClimateLabourHealth&Tax

TransitionRelationsSafetyTransparency

4Parsimony

Energy&Waste&HumanRightsConduct&

ResourceUsePollution&CommunityAnti-Corruption

BiodiversityWaterUseBoard&Shareholder

ManagementRights

012345

0123456789

Q1

Q2

Q3

nascent(e.g.BiodiversityorHumanRights).

5

4

3

2

1

0

23Dodsworthetal,2023,

Financial,Double,orDynamic?TheoriesofESGMaterialityandPractitionerApproaches

24Bourne,Dodsworth&Schlich,2024,

MadetoMeasure:IndicatorConstructionandMeasurementScalesinESGScoreDesign

25MetricprioritisationwasguidedbyframeworksfromtheGlobalReportingInitiative(GRI),theSustainabilityAccountingStandardsBoard

(SASB),InternationalLabourOrganisation(ILO)Conventions,andtheCorporateHumanRightsBenchmark(CHRB),aswellasreferencetotheInternationalSustainabilityStandardsBoard’s(ISSB)structureofInternationalFinancialReportingStandardS1(IFRSS1).

IntroducingtheLSEGESGScores9

Themematuritiesandscoringcaps

ComparingtheresultingdataonESGthemesshowssignificantdivergenceindisclosurepracticesandthedistributionofcorporatesustainabilityperformance,requiringcarefulconsiderationwhenapplyingascoringscale.RelativelymaturethemessuchasShareholderRightsorClimatehavewell-establisheddefinitionsfromreportingstandards(e.g.CorporateGovernanceCodesorIFRSS2)andfaceheightenedexpectationsfromregulatorsandinvestors(suchastheICGNorIIGCC).Intheseareas,corporatepracticesanddisclosurestendtobemoredeveloped,resultinginricherinformationwithwhichtoassesscompaniesandbell-shapeddistributionsofthemescores(seeFigure6).Bycontrast,othermorenascentthemessuchasBiodiversitywherereportingstandards(suchasTNFDortheESRS)arestilldeveloping,thereismuchmorelimitedinformationavailablefromcompanies,withthemescoresskewedtotheleft,requiringcarefulcalibrationofscoringthresholds.

Figure5.CompaniesinEnergy&ResourceUsethemeaffectedbythescoringcap(presenceofEnergyEfficiencyTarget)26

Figure6:ESGthemesexhibitdivergingdatamaturity

Biodiversity

01234567

25

20

15

10

5

0

ShareholderRights

01234567891011121314

25

20

15

10

5

0

#indicatorsmetwithinthemepercompany

Figure7:CorporatedisclosurepatternsdiffersignificantlybetweenESGthemes

Averagedisclosure

75%

50%

25%

0%

ShareholderRightsHighThemeMaturity

Board&Management

LabourRelations

Health&Safety

Waste&Pollution

Energy&ResourceUse

ClimateTransition

WaterUse

HumanRights&Community

TaxTransparency&Accounting

LowThemeMaturity

Conduct&Anti-Corruption

Biodiversity

0510152025

No.indicators

Source:LSEG.BasedonESGdataforFY2024for2620largeandmid-capcompaniesfromtheFTSEAll-WorldIndex.

26Forafulllistofcappingindicato