Taylor Gray, Ph.D.
The world is a better place when companies are good corporate citizens. I remain focused on developing meaningful and actionable insights from empirical data in pursuit of a better world.
Motive is built from the science of impact and a promise of unfettered truth. Our objective is to support people in making good decisions based on what they care about. In our pursuit of this objective, we take in a lot of information and data--and we are very careful in the type and the source of information we engage, as not all information is of equal quality.
We collect, develop, analyze, and interpret data to be able to better understand the impacts and attributes of the consumer products we all buy and use everyday. These insights and analyses are the foundations of the Motive RealScore. We focus solely on accessing and interpreting empirical data and evidence to be able to bring credible and reliable insights and interpretations to your decision-making process. Of all the types of data we access, none are as important to us as is ESG data.
At Motive, we provide a RealScore for consumer products and brands we all buy and use everyday...so why is ESG data so important to us?
Value of ESG
As previously discussed, ESG data is a universe of information which relates a company’s environmental, social, and governance performance to its, typically longer-term, financial performance. ESG was born as a risk-management investment framework but has developed over the last two decades into its own Business & Society ideology. As an ideology, it has subsumed the traditionally distinct investment and business management fields of socially responsible investing, corporate social responsibility, triple bottom line management, and, increasingly, stakeholder capitalism. Today, any mention or understanding of corporate ‘sustainability’ is likely to be built--in part or in whole--from ESG data and perspectives.
ESG data is a reflection of who a company is in a global society.
ESG has been so successful largely because it is based on actual empirical data and in itself remains value-neutral. ESG data is positive rather than normative as it seeks to measure all elements of corporate environmental, social, and governance impacts and exposures--it is a measure of what is rather than an indication of what should be. ESG data will not tell me if a company is a good climate actor, for example, but it will provide me with empirical measures of the company’s actual emissions, fuel sources, and supply chain dynamics which allow me to determine for myself whether the company is a good climate actor. Whereas traditional financial data is a reflection of how well a company does in global markets, ESG data is a reflection of who a company is in a global society.
And delivering on our objective depends on knowing who a company is.
ESG in the Motive RealScore
When determining a RealScore for a brand, we look to the company behind the product and not to the brand itself. Sometimes the company and the brand are one and the same, but more often than not this is not the case. Brands are everywhere, but brands are not real, they are simply marketing. It is the companies behind the brands which employ people, mobilize supply networks, engage with communities, and transform resources. It is the companies behind the brands which make decisions everyday with impacts for us all, and it is the companies behind the brands which are supported by our consumer spending.
Brands can also be misleading. A company may develop multiple brands even within the same consumer sector in efforts to grow their market share while also serving to confuse consumer sentiment.
As an example, perhaps you are concerned by the impacts of industrial agriculture and so choose to buy Cascadian Farm Organic Purely O’s instead of Cheerios in efforts to support smaller scale operations and, you hope, local organic farming practices. But this is not a true choice. Both products are brands owned by General Mills Inc. and although there may be slight differences between the two, your consumer spending is supporting the same corporate culture, structure, and operations regardless of the choice you make.
Following in this example, and as this is not exclusive to General Mills Inc., perhaps you choose to eat Mueslix cereal, not only because you like it but because you refuse to buy any sweetened cereals which advertise to children. Yet Mueslix is a brand of The Kellogg’s Company which owns over 100 current or recently retired cereal brands around the world, with a large share of these being sweetened cereals which are advertised to children. Again, these brands become a false choice. Though there may be differences between certain elements of the two, your consumer spending is supporting the same corporate culture, structure, and operations regardless of the choice you make.
Now, these two examples are easy cases which are not necessarily representative of all brands. Some brands are fully independent. Some brands are partially owned by another company, others are entered into strategic partnerships or joint ventures. Some brands are acquired by a larger company yet under a deal which preserves some degree of independence and autonomy. The important thing to note from these examples, however, is that when concerned with impact and sustainable or ethical brands, it is what is behind the brand which matters. Brands are marketing, companies are real.
With a focus on companies, there is no better data than ESG to be able to understand the full array environmental, social, and governance attributes and impacts. As discussed ESG grew from an investment framework into a Business & Society ideology and the majority of the data employed in decision-making within this ideology continues to be developed fitting the meticulous demands of the investment industry.
The laws relating to truth in accounting are much more developed--and much more heavily enforced--than are the laws relating to truth in marketing.
ESG data is held to a higher standard of accuracy than most. It is held to such a high standard not only by investors who use this data to support their decision-making processes but also by government regulators and agencies keen to preserve faith in capital markets and by investment service providers keen to preserve faith in their products.
Any third-party ESG data provider to institutional investors must be able to guarantee the accuracy of the data they provide. Any errors, omissions, misunderstandings, or misrepresentations in the data could impact the allocation of hundreds of billions of dollars at any given time, which is not an overestimate as there is currently over $40 trillion USD in assets under management around the world following some form of ESG implementation. Markets hold ESG data providers to account and in turn ESG data providers hold their information sources to account. Good ESG data providers never accept information at face value but rather inspect and verify for accuracy and applicability (or ‘materiality’).
In parallel, government agencies and regulators, stock exchange operators, and securities commissions the world over invest heavily in ensuring accuracy, materiality, and credibility in the information flowing through capital markets. The laws relating to truth in accounting are much more developed--and much more heavily enforced--than are the laws relating to truth in marketing.
A company could make a grandiose statement of its commitment to diversity and equality and use this aspirational content to fuel a large scale marketing campaign. This same company, however, could not report these claims as fact in their investor disclosures until its promises actually came to fruition. The ‘commitment’ to diversity and equality is fodder for marketing but it is not fact; the actual racial and gender distribution of employment within the company is fact, and it is material to investors and their associated ESG data providers. ESG gives us a window into how a company is operating. Through historical data we can also see how a company is evolving.
Variety in ESG
ESG is a robust ideology to provide the types of information we need to better understand a company’s structure, culture, operations, and impacts--and by extension how well it aligns with the issues consumers care about--but this does not mean all ESG data is of equal quality. In fact, many of the leading ESG rating firms do not find agreement even when considering the same data and companies.
Most ESG ratings providers access similar, if not the same, sources of data, yet they differ in how they interpret, analyze, and represent findings of these data. To this day there is little standardization within the industry to prescribe how ESG data should be collected, analyzed, and transformed into meaningful ratings.
In this setting, we believe the best quality ESG data is that which is transparent. Research is indicating that nearly half of the difference in ESG ratings between providers is due to how they measure what it is they are measuring and the other half is due to how they define what it is they are measuring--which is what we at Motive refer to as information accuracy and applicability--the two pillars of information quality.
Through transparency, we can understand where and why certain discrepancies between rating firms may arise and adjust accordingly. Even in the best cases, data is an abstraction of reality, and a rating is an abstraction of data, meaning it is already two degrees removed from reality--transparency is of paramount importance to be able to determine if the interpretation held strong to the reality reality within these two degrees of separation or not. Just as bricks and lumber do not make a house, data is but the ink with which researchers write a story--it is transparency in the process that lets you know more about who is writing, why they are writing, and how they are writing.
We use ESG data as we believe it is the best resource to gain insight into companies’ structures, cultures, operations, and impacts; however we only use ESG data that we have developed or that we have accessed from a provider committed to transparency. Our objective is to support people in making good decisions based on what they care about--and we aim to build trust through transparency.
Motive is building RealScore from insights like these. Our Beta program is launching soon...Reserve your seat now!