How do investors score bank ESG?

• We have entered a research partnership with ValueCo with the aim of providing additional insights and analysis on ESG to our clients

• ValueCo gathers the internal ESG scores assigned by investors and harmonizes them for comparability

• These anonymized opinions are then made available for investors and issuers

• We show the latest ESG opinions and consensus score amongst a range of European GSIB’s, though a more comprehensive note will follow as part of our ESG Strategist publication series

ValueCo is a start-up in the ESG data space. It collects proprietary sustainability-related scores from 23 investors on more than 5 thousand listed issuers and shares this buy-side view on ESG. The contributor investor base includes well-known asset managers, private banks and institutional investors, predominantly in Europe. To remain up-to-date, the contributor investor scores are provided at least every quarter or each time they are modified/updated. We have entered a research partnership with ValueCo with the aim of providing additional insights and analysis on ESG to our clients based on this data. In this short note, we show the latest ESG opinions and consensus score amongst a range of European Globally Systemic Important Banks (GSIB’s) in something of a sneak preview. A more comprehensive note will follow as part of our ESG Strategist publication series.

Looking at the internal investor scores, a good place to start is the consensus score calculation, which is rather straightforward as it is a simple median. But since contributions formats can vary, ValueCo first needs to standardize the opinions in the same scale, ranging from 0 to 100 (0 being the worst grade and 100 the best). Also important is the consensus strength, which illustrates the degree to which contributors agree in their ESG assessments. This is calculated as the mean absolute deviation (MAD) around the median and rescaling this into a score between 0 and 100, with 100 suggesting a perfect consensus (i.e. all contributors agree on the same score).

There are some clear outliers in the responses, which might suggest different things. For instance, the methodologies used by the investors may still vary a lot; or the weights assigned to each ESG factor might also differ across investors. ING has the widest range in contributor scores, while 4 out of 11 contributors assigned a score below 50 (two contributors scored the bank at 35). We have also included the issuer 5y Credit Default Swap (CDS) spread (tight hand scale, triangle points) and it shows that the ING contracts offer the lowest credit spread in this sample. Therefore, bond pricing wise the market seems to agree more with the bank’s most generous contributors and/or draws more comfort from ING’s above-peer average equity capital ratio outlook. Either way, the weakest of ESG opinions are clearly not priced in.

This article is part of the SustainaWeekly of 26 June 2023