What is ESG Data and how to use it?

Hi there,

This is Ekku from Datarade.

Welcome to Data explained. Today we're going to talk about ESG data.

Topics of sustainability and ethics are becoming more and more important in today's society. The environmental aspects of a business can have a huge impact in a company's future.

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That's why today you're going to learn what ESG data is, where it's being collected from and how it contributes to the world of business today.

So what is ESG Data?

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Environmental, social and governance data. It's information on a business and its impact on its surroundings.

Environmental aspects of a given business. For example, can be understood through data on its carbon emissions, the use of their renewable energy sources or their water stress levels that they're producing.

Social aspects of a given company can be understood through data on human capital and labor standards.

Governance aspects of a given company, for example, can be understood through data on business ethics, their involvement in any corruption, or statistics on the company board.

So there's a lot of information on a single company that we're able to collect.

How does the data collection look like, in terms of technicalities?

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Companies are already having a lot of information available on their web sites, in their ESG, annual, and proxy reports. Information collected directly from company resources obviously will lead to self-reported ESG performance statistics.

Similar information can be drawn from reports on web sites that are provided by NGOs and governments.

Alternative data sources for ESG data may include financial news, social media, as well as company reviews. These will offer you a lot more recent insights on their ESG performance of a given company.

So, to the use cases.

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Essentially ESG data is a form of alternative data that can be used in company analysis.

This is why investors and hedge funds are using it to identify low risk business investment opportunities based on the company's promising environmental and ethical aspects.

There are three major things about data quality with ESG. 

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As long as the information is collected directly from the companies themselves, they will have their own agendas that they want to drive towards, and occasionally this might lead to some sort of a bias.

We can try to minimize that bias by making sure that your data provider is using a larger variety of different sources for their raw data.

Update frequency; If your data provider is only using the company’s annual reports as their main source of information, you will get updates once a year. If they use other sources like financial news or social media, you can get updates at least on a daily basis.