Low Carbon Transition Rating
Event Indicators by Theme
Environmental, Social, Governance
Morningstar Sustainalytics assesses companies’ involvement in incidents with negative environmental, social and governance (ESG) implications. Controversy involvement is one key measure of ESG performance that may inform the investment decisions of our clients.
Components of the Controversy Rating
The Controversy Rating reflects a company’s level of involvement in issues and how it manages these issues. The diagram below provides an overview of how the Controversy rating is reached:
Defining Incidents and Events
INCIDENT
An Incident is the building block to a Controversy Rating. It is a company activity with unintended and/or undesired negative environmental and/or social impacts on stakeholders. Incidents are primarily assessed based on the negative environmental and/or social impact of the company activity as well as the reputational risk that this activity poses to the company.
Incidents are tracked through various media and NGO sources and typically inform the Controversy Rating for a period of three years. In exceptional cases, long-running high-impact incidents continue to inform the Controversy Rating for more than three years until it no longer poses a risk to the company.
EVENT
Events are a series of isolated or related incidents that pertain to the same ESG issues. Events are classified into 40 Event Indicators which speak to these ESG issues. For example, a series of employee strikes in various locations of a company’s operation forms an event under one of the event indicators, “Labour Relations”. To assess an Event, an analyst looks at the series of underlying incidents from a holistic perspective and assesses based on the following factors:
- Impact: Negative impact that the incidents have caused to the environment and society.
- Risk: Business risk to the company as a result of the incidents.
- Management: A company’s management systems and response to incidents.
Select an Event Indicator according to the theme: Environmental, Social or Governance:
| Code | Indicator Name | Description |
| EV.3 | Animal Welfare | This event indicator assesses incidents related to a company’s failure to ensure the wellbeing of animals kept for human consumption, animal testing or other purposes. |
| EV.12 | Land Use and Biodiversity | This event assesses incidents related to a company’s failure to adhere to sustainable land use practices, resulting in negative impacts on land or ecosystems, such as biodiversity. |
| EV.14 | Emissions, Effluents and Waste | This event indicator assesses incidents related to the release or improper disposal of waste, effluents or emissions (excluding carbon dioxide) into the environment. |
| EV.15 | Energy Use and GHG Emissions | This event indicator assesses incidents related to the poor management or excess release of greenhouse gas (GHG) emissions from a company’s business activities. |
| EV.17 | Environmental Impact of Products | This event indicator assesses incidents related to a product’s negative impact on the environment, as well as those related to products from a company's suppliers. Incidents may emerge as a result of lawsuits, product bans, recalls or stakeholder scrutiny due to the negative impact of a company’s product. |
| EV.33 | Water Use | This event indicator assesses incidents of excessive water use associated with a company’s operations, or activities in water scarce areas. |
| EV.35 | Animal Welfare - SC | This event indicator assesses incidents related to the failure of a company’s suppliers to ensure the wellbeing of animals kept for human consumption, animal testing or other purposes. |
| EV.39 | Emissions, Effluents and Waste - SC | This event assesses incidents in the supply chain related to the release or improper disposal of waste, effluents or emissions (excluding carbon dioxide) into the environment. |
| EV.40 | Energy Use and GHG Emissions - SC | This event assesses incidents related to the poor management or excess release of greenhouse gas (GHG) emissions from business activities in a company’s supply chain. |
| EV.43 | Land Use and Biodiversity - SC | This event indicator assesses incidents related to the failure of a company’s supplier to adhere to sustainable land use practices, resulting in negative impacts on land or ecosystems, such as biodiversity. |
| EV.45 | Water Use - SC | This event indicator assesses incidents of excessive water use associated with a company’s suppliers, or activities by suppliers in water scarce areas. |
| EV.46 | Carbon Impact of Products | This event indicator assesses incidents related to the harmful environmental impacts of carbon dioxide emissions associated with the use of a company’s products. For financial institutions, this may include the financing of projects or companies whose products result in significant carbon dioxide emissions. |
| Code | Indicator Name | Description |
| EV. 1 | Access to Basic Services | This event indicator assesses incidents related to a company’s failure to ensure access to essential products or services, such as food, water and health care. |
| EV.10 | Community Relations | This event assesses incidents related to company activities that negatively impact local communities, including indigenous communities, and how companies respond to and manage conflicts with affected groups. |
| EV.20 | Occupational Health and Safety | This event indicator assesses incidents related to a company's activities that have a negative impact on workers' health and safety. These include workplace accidents, chemical contamination, diseases and labour activities that endanger employee safety. |
| EV.22 | Labour Relations | This event indicator assesses incidents related to poor compensation or unfair working conditions that are raised by a company's own employees or their representatives, such as labour unions. It also includes incidents related to discrimination and harassment in the workplace. |
| EV.24 | Marketing Practices | This event indicator assesses incidents related to false or deceptive marketing practices, such as using misleading or incorrect statements in promotional materials or targeting vulnerable consumers. |
| EV.25 | Media Ethics | This event indicator assesses incidents related to breaches in editorial standards, content or general ethical principles for the media, including broadcast, print, digital and other types of media outlets. |
| EV.27 | Data Privacy and Security | This event indicator assesses incidents related to breaches of customer data privacy, unauthorized disclosure, collection or use of personal data, or failure to protect customer data. |
| EV.28 | Quality and Safety | This event indicator assesses incidents related to alleged quality or safety issues associated with a company’s products or services, which may result in negative impacts on the safety or wellbeing of consumers, or society. |
| EV.29 | Resilience | This event assesses incidents related to the ability of financial institutions to withstand negative shocks arising from changes in economic conditions, and therefore avoid negative impacts on taxpayers and other stakeholders. |
| EV.32 | Social Impact of Products | This event indicator assesses incidents related to a product’s negative impact on society. Incidents may emerge as a result of lawsuits, product bans, recalls or stakeholder scrutiny due to the negative impact of a company’s product. |
| EV.34 | Weapons | This event indicator assesses incidents related to the production or sale of weapons that are subject to arms export regulations, or otherwise controversial weapons, as well as the sale of weapons to countries that are especially prone to armed conflict and human rights violations. |
| EV.38 | Community Relations - SC | This event assesses incidents related to activities by a company’s suppliers that negatively impact local communities, including indigenous communities, and how a company responds to and manages conflicts with affected groups. |
| EV.42 | Labour Relations - SC | This event indicator assesses incidents relating to poor compensation or unfair working conditions in a company's supply chain. |
| EV.44 | Occupational Health and Safety - SC | This event indicator assesses incidents related to activities by a company’s suppliers that have a negative impact on worker health and safety. Such incidents include occupational hazards such as workplace accidents, chemical contamination, diseases and labour activities that endanger employees' safety. |
| EV.47 | Employees - Human Rights | This event indicator assesses incidents related to violations of the human rights of employees within a company's own operations. This includes incidents involving the use of forced labour, slavery and child labour, discrimination or sexual exploitation. |
| EV.48 | Society - Human Rights | This event indicator assesses incidents related to a company's direct or indirect involvement with corrupt governments, dictatorial regimes or parties that have a track record of human rights violations or are engaged in human rights abuses. This indicator also analyzes incidents regarding a company's direct or indirect activities in occupied territories and non-self-governing territories. |
| EV.49 | Employees - Human Rights - SC | This event indicator assesses incidents related to violations of the human rights of workers within a company's supply chain. This includes incidents involving the use of forced labour, slavery and child labour, discrimination or sexual exploitation. |
| EV.50 | Society - Human Rights - SC | This event indicator assesses incidents related to a company's suppliers' direct or indirect involvement with corrupt governments, dictatorial regimes or parties that have a track record of human rights violations or are engaged in human rights abuses. This indicator also analyzes incidents regarding a company’s suppliers' direct or indirect activity in occupied territories and non-self-governing territories. |
| Code | Indicator Name | Description |
| EV.2 | Accounting and Taxation | This event indicator assesses incidents related to accounting irregularities as well as efforts to reduce the amount of taxes paid through tax evasion (use of illegal means to evade taxes) or tax avoidance (the use of legal means to reduce tax liabilities). |
| EV.4 | Anti-Competitive Practices | This event assesses incidents related to attempts to prevent, reduce or restrict competition in a market, primarily through alleged violations of antitrust regulation. |
| EV.6 | Bribery and Corruption | This event indicator assesses incidents related to bribes that are paid or accepted by a company to or from government officials or other private entities to secure an unfair advantage over other companies. |
| EV.7 | Business Ethics | This event indicator assesses incidents related to ethical violations committed by a company or its employees. This includes fraud or enabling fraud, money laundering, manipulation, misuse of power or of corporate assets, and conflicts of interest, among others. |
| EV.13 | Corporate Governance | This event assesses incidents related to the quality and integrity of a company’s corporate governance structures, including the structure and oversight of its board of directors and shareholder rights and remuneration. |
| EV.21 | Intellectual Property | This event indicator assesses incidents related to breaches of intellectual property rights, such as patents, copyright, industrial design rights, trademark, or trade secrets. |
| EV.23 | Lobbying and Public Policy | This event assesses incidents related to lobbying or public spending that is perceived to violate ethical or legal standards. |
| EV.30 | Sanctions | This event indicator assesses incidents related to corporate activities that result in a breach of international sanctions, issued by supranational organizations or individual countries. |
| EV.36 | Bribery and Corruption - SC | This event indicator assesses incidents related to bribes or kickbacks that are paid or accepted by a company’s suppliers to government officials or other private entities to secure an unfair advantage over other companies. |
| EV.37 | Business Ethics - SC | This event indicator assesses incidents related to ethical violations committed by a company’s suppliers. This includes fraud or enabling fraud, money laundering, manipulation, misuse of power or of corporate assets, and conflicts of interest, among others. |