A company’s environmental, social and governance (ESG) profile is notoriously difficult to define. The three categories are broad and can potentially include hundreds or even thousands of datapoints that make it difficult to decipher a company’s rating. This creates a challenge for investors and management teams to effectively engage on what initiatives will produce the best long-term impact and ultimately reward both parties. This is particularly true for the North American energy industry, one of the most heavily scrutinized sectors.
Producing the world’s energy is an extremely complex material- and labor-intensive process and warrants more attention, but proper stewardship deserves equal acknowledgement. To do this effectively, the industry needs a transparent, quantitative way of comparing the performance of different companies. We view this as a major challenge in communicating initiatives, both good and bad, that the industry is undertaking today. Our ESG ranking methodology breaks through this barrier. There is no shortage of providers that analyze ESG in today’s market, but we are the only firm focused on energy, which allows us to concentrate on what matters for our industry.
Transparency is key at Enverus. Our ranking system is based off 32 factors, selected due to our 20 years of experience in the industry, and feedback from our institutional and corporate clients. We go beyond company disclosure and include industry-specific data from a variety of federal and state/provincial oil and gas reporting agencies, SEC/CSA filings and satellite imagery. We consolidate and standardize this data, all available at your fingertips in our PRISM platform, to give clients the freedom to dive into the statistics and get to the root cause of ESG performance. The score is based on a range-normalized scoring algorithm that assigns each company a value between 0 and 1 for the 32 factors depending on performance. The final output is the overall ESG score, out of 100, for each company we cover (Figure 1). Calculating ESG scores this way allows for a transparent breakdown of each score. An example on an environmental breakdown is shown in Figure 2.
Investing is hard but defining ESG doesn’t have to be.
FIGURE 1 | Enverus ESG Scores
FIGURE 2 | Environmental Summary