The Beyond Ratings ESG Factor-In © tool is an innovative ESG assessment methodology that uses advanced econometric techniques to determine the materiality of 229 Environmental, Social and Governance factors. As the ESG materiality of a specific indicator differs according to the level of economic development of countries, Beyond Ratings has built 5 country groups (derived from World Bank income groups), each using a dedicated model. Each model identifies the most relevant ESG factors and evaluates the country performance of these indicators relative to its peers and its GDP.
The ESG Factor-In © methodology delivers 2 key metrics that allow us to characterize the ESG situation of the country:
i) A “sustainable GDP” that is transformed into a 0-100 range score which corresponds to the absolute ESG level of countries.
ii) The GDP performance it takes to generate returns in ESG- which equals the gap between the sustainable GDP given the GDP and its actual value. This indicator represents the country’s ability to efficiently transform GDP into ESG.
Accounting for GDP performance allows us to fine-tune scores between countries that have the same level of ESG. For instance, Saudi Arabia and Czech Republic reach the same ESG level whereas their actual GDP per capita are very different (49,000 $2011 PPP vs 32,605). Consequently, Saudi Arabia has a 23% underperformance and Czech Republic has an overperformance of 22%. In a long-term perspective, we would recommend giving more weight to Czech Republic compared to Saudi Arabia. Regarding countries having the lowest ESG scores, we can see similar situations (Congo Democratic Republic/Central African Republic; Comoros/Chad).
These metrics can be broken down by pillar (E, S and G) to increase relevance of analysis. It also can be transformed into ESG exposure for corporates thanks to their turnover breakdown, to create a new pertinent ESG evaluation.
Sources: Beyond Ratings, WB, IRF, ENERDATA