This document summarizes a presentation about the next frontier for environmental, social, and governance (ESG) research and ratings. It discusses how ESG metrics and measurements are moving from qualitative to quantitative and from niche to critical mass coverage. It also describes the establishment of a Center for Ratings Excellence to develop ESG rating principles and standards through research labs and collaborations. Finally, it addresses the need for standardized ESG metrics to properly value externalities and enable more efficient capital allocation.

1. The Next Frontier for ESG Research and Ratings
Mark Tulay, GISR @MarkTulayESG
Bob Mann, Sustainalytics @Sustainalytics
Andrew Park, Bloomberg @Bloomberg
Steve Leffin, UPS @UPS

2. The Next Frontier for ESG Research,
Ratings and Data
Mark Tulay
Sustainable Brands: New Metrics ‘14
September 25, 2014

3. 3
“I conceive
that the great
part of the
miseries of
mankind are
brought upon
them by false
estimates
they have
made of the
value of
things.”
Benjamin Franklin

4. 4
Select GISR Partner Representatives
4
Conveners
Companies Investors
Metanoia
Fund
NGOs & Foundations

5. Center for Ratings Excellence (CORE)
5
• Development of GISR Principles
• Establishment of the GISR Standard
• 3rd party Accreditation
Framework
• Profiles of ESG Research/Ratings
• Registry comprising Profile & GISR Principles-based
information
• Searchable database of research/ratings industry
• Reports and publications
Hub
• Incubation of new ratings’ approaches
• Integrated Ratings: meshing financial and
sustainability content in company and credit ratings
• Sector- and Issue-based innovations
Labs
• Education, training, and outreach for industry
stakeholders
• Special events, webinars and roundtables
• Collaboration with industry groups and standards
bodies
Convenings

6. Illustrative Examples of CORE Labs
 Embedding Sustainability into Credit Ratings
 Infusing Sustainability into fixed Income research & ratings
 Use of Sustainability Scenarios in Equity Valuation and Ratings
 Research/ratings in emerging markets; new applications to
private/state controlled enterprises
 Sector-based Pilots, Labs & Roundtables, e.g. Food Sector
 Sustainability Context & Sustainable Markets: Making the
Connection
 Streamlining the ESG survey and information gathering process
 Quantification of Social Metrics & Issues: The Next Wave
 Integrated Ratings: Meshing financial and sustainability
materiality
 Standards and best practices for accrediting green bonds
6

7. Next Frontier for ESG Research & Ratings
7
Market Element From Barriers… To Breakthroughs...
Materiality Values Value
Metrics/KPIs Qualitative Quantitative
ESG Research Coverage Niche Critical Mass
ESG Measurement Policy & Procedures Performance & Context
Benchmarking Index-based/Universal Sector-based
Investors Exclude ‘externalities’ ESG ‘integration’
Asset Owners Ignore Engage
Sustainability Initiatives Complexity & Competition Clarity & Collaboration
Frameworks & Standards Proliferation Harmonization
Companies Transparency Transformation
Leadership @ Scale = Disclosure + Measurement

8. Are we approaching a ‘Lemhi Pass’ moment
in ESG metrics & measurement? What
does this next frontier in ESG
research/ratings mean
for you and your
organization?
8

9. Thank you
For more information:
www.ratesustainability.org
mark.tulay@ratesustainability.org
9

10. SUSTAINABLE FINANCE
AND
BLOOMBERG LP
September 2014
Bloomberg LP

11. Bloomberg’s “Sustainable Finance Program” emerges from two
out of the three prongs of our Sustainability Group’s work
|
11
Planet
(Operations)
Product
(Business)
People
(Citizenship)
Sustainable Finance Program
• Focused on data/analytics
• Strategic deployment of
philanthropic resources
• Deep engagement with
external partners
(NGOs & non-profits)

12. |
On the Terminal, we carry sustainability information, broadly
referred to as “ESG”: Environment, Social, Governance data
12

13. ESG information powers many analytic tools used by the finance
and investment community
|
13
ESG Scoring
(“ESG Scorecard”)
Compensation Analysis
(“Exec Comp Analyzer”)
Risk Analysis
(“Country Risk Analyzer”)
Asset
Stranding
(“Carbon Risk
Valuation Tool”)

14. |
ESG usage data suggests increased traffic and use
14
2,415
2009
4,704
2010
5,747
2011
7,779
2012
Number of Customers Using ESG Data
Number of Unique Users
47.7% Average
Annual Growth
www.bloomberg.com/bsustainable
ESG
Premium
5 Main
Investor
Types
SRI
ESG Tilt
Corporates
Consultants
Research
Thematic

15. Intangible value makes up an increasing proportion of company
value; ESG helps understand that value
|
15
17%
32%
68%
80% 81%
83%
68%
32%
20% 19%
100%
80%
60%
40%
20%
0%
1975 1985 1995 2005 2010
Intangible Assets Tangible Assets
http://www.oceantomo.com/productsandservices/investments/intangible-market-value

16. However, a significant portion of ESG data remains incomplete
and incomparable, which limits its usability
|
16

17. |
Filling in these “data gaps” requires consistent reporting;
standards, disclosure, and data are part of a virtuous cycle
17
Race to the Top

18. Our underlying theory of change connects ESG information, to
externalities, to capital markets
|
Price
Quantity
Finance
Community
...enabling more
Efficient Capital
Allocation
Externalities
• Data
• Research
• Analytics
• Decision-useful
• Curated
• Actionable
Sustainable Finance
(Through more complete information…)
18

19. |
Standardized metrics are necessary to measure externalities,
produce data, and ascribe prices
19
Business
Activity
• Financial
Capital
• Physical
Capital
• Product &
Business Output
• Economic
Output
(Investor Value)
• Human
Capital
• Intellectual
Capital
• Natural
Capital
(Valuing
Ecosystem
Services)
• Social Impacts
• Environmental
Impacts
We are already
measuring these well;
they are accounted for
These are NOT well
defined or measured; they
are not accounted for
INPUTS
(Supply)
OUTPUTS
&
IMPACTS
(Demand)

20. |
We already support NGOs that are developing metrics to
measure social and environmental impacts (“demand side”)
Business
Activity
OUTPUTS
&
IMPACTS
(Demand)
• Product &
Business
Output
• Economic
Output
(Investor Value)
• Social Impacts
• Environmental
Impacts
These already enjoy accepted,
standardized accounting methodologies.
These do not have generally accepted,
standardized accounting methodologies.
Current NGOs in the demand portfolio include:
20

21. SASB is of particular interest because it incorporates the SEC’s
definition of financial materiality
|
FASB did
it for
Financial
Metrics
SASB can
do it for
Sustainability
Metrics
Corporations benchmark,
measure, and manage
sustainability performance
Investors can use
performance data in
making investment
decisions
Material issues
clarify the noise
Everyone benefits when
companies compete on
non-financial performance
21

22. |
SASB has successfully completed four sector standards and
has five other sectors underway
At any given time, there
are multiple sectors in
progress at different
stages of development.
Upcoming
Sectors Consumption II
Industry research Vetting process
Standards
development
Released Dec
Released this month
Public comment
Evidence
gathering
Provisional
standards
issuance
Industry
working groups
Delta Series
convening
Standards
Council review
Additional
research +
expert inputs
2014
Standards
Council review
SEC Briefing
• Health Care
• Financials
• Technology &
Communications
• Non-Renewable
Resources
Consumption I
Resource
Transformation
Services Transportation
Provisional
Standards
Issued to Date
• Renewable
Energy
• Infrastructure
SASB is scheduled to complete all sectors
with over 80 industries by Q1 2016
22

23. |
A parallel challenge exists on the “supply side” – we are
developing portfolio to help develop these metrics too
Business
Activity INPUTS
(Supply)
• Financial
Capital
•Physical
Capital
•Human
Capital
• Intellectual
Capital
• Natural
Capital
These are already
measured well.
These inputs do not have generally accepted,
standardized accounting methodologies.
Potential NGO partners in the supply portfolio (with focus on ecosystem services) include:
23

24. |
The NGO community leads the externality accounting effort;
Bloomberg can help harmonize these initiatives
Standard Setter
1
2
3
4
5
6
Value Proposition Future State
• Issue Identification
• Multi Stakeholder
• Issue Prioritization
• Targeted Stakeholders
• Measurement
• Performance
• Financial Integration
• Capital Flows
• Application
• Certification
• Implementation
• Validation
• Integration of Financial
and Sustainability
Reporting
Primary
Audience
NGOs /
Companies
Industry /
Regulators
Raters /
Research
Asset Owners /
Managers
Analysts / PMs
/ planners
Companies /
Communities
Companies /
Accountants
7
Sustainable
Finance
WRI
CDP
UNEP FI
24

25. SUSTAINABLE FINANCE
AND
BLOOMBERG LP
Andrew Park
apark29@bloomberg.net
September 2014
Bloomberg LP

26. www.SustainableBrands.com