Low Carbon Transition Rating
Policies, Programmes, Performance & Disclosure
Defining indicator types and other key details
Morningstar Sustainalytics ("Sustainalytics") uses management indicators to assess how well a company manages ESG issues. Sustainalytics classifies management indicators into four categories:
- Policies
- Programmes
- Performance
- Disclosure and Compliance
Details on definitions and supporting documentation can be found below.
Policy Indicators: What is an ESG Issue Policy Document?
A policy indicator assesses the strength and quality of an issuer’s policy commitment to address a material ESG issue. Sustainalytics will typically look for the following criteria in order to determine whether a corporate document qualifies as a formal policy:
- A set of clearly articulated corporate-wide commitments.
- An explanation of which management teams or individuals are responsible for implementing the policy.
- Evidence that the policy is subjected to a formal review process and treated as a formal commitment within the company. This could be demonstrated by any of the following non-exhaustive characteristics: a timestamp and/or approval date, employee training on the policy contents, the signature of the CEO, executive team, or board member.
- An ESG Issue Policy Document can be a unique, standalone document, or it can be part of a larger policy document.
- An example of the former is a unique, standalone Human Rights Policy.
- Examples of the latter include the following:
- A company Code of Conduct that includes a separate section on Bribery & Corruption.
- An Environmental Health & Safety (EHS) Policy that has a separate section on Environmental commitments.
What is NOT a Policy Document?
- General statements that do not list specific commitments as defined above. These include company mission statements.
- References to your company's adherence to regulatory requirements do not meet Sustainalytics' requirements for a policy document.
Timeframe
- To ensure the policy has been fully implemented, the documents’ approval date should be at least 1 month before the research start date.
- Validity: the policy date stamp cannot be older than 5 years. Sustainalytics expects the company to conduct regular reviews (annual or bi-annual) of their policies.
Programme Indicators
Programme indicators are designed to evaluate a company’s operational systems for managing its material ESG risks. These indicators are aligned with and/or informed by recognized management systems, such as the ISO 9001 quality standard or the ISO 14001 environmental management standard.
Common assessment criteria include:
- Executive accountability
- Risk/impact assessment
- Training or other initiatives to ensure compliance with policies
- Objectives/targets
- Monitoring, measurement, reporting
- Incident investigation and corrective action.
Indicator examples:
- GHG Reduction Programme
- Environmental Management System
- Diversity Programmes
- Cybersecurity Programme
- Bribery and Corruption Programmes.
What is a Programme?
When assessing programme indicators, Sustainalytics looks for examples of measurable initiatives taken at the group/company level to measure how well a company is managing a given issue.
Document Requirements
- Programmes and initiatives should be executed by the entity to be researched. Refer to additional details on parents and subsidiaries within the section below: "Corporate Entity and Assessment Scope".
The following Programme Indicators include criteria that require public disclosure:
Timeframe
- The initiatives must be fully implemented before the research start date and as per the fiscal year of the assessment.
Performance Indicators
Performance indicators measure the effectiveness of policies, programmes, and management systems and are tracked yearly to show a trend over time. For example, the carbon intensity trend tracks a company’s carbon emissions over time to provide information regarding the effectiveness of its carbon emissions reductions programmes.
Focus on Quantitative Targets
For all indicators that address “objectives, targets and deadlines”, Sustainalytics specifically looks for forward-looking quantitative targets set at a group/company level with a clear deadline for reaching those targets. General commitments are insufficient.
Document Requirements
- Sustainalytics does not require a specific format regarding the type of document to be provided. The requirements relate instead to the type of data to be provided.
- E.g.: CDP (formerly Carbon Disclosure Project) reports are accepted – i.e., Climate Change and Water Security. (Please note, Sustainalytics does not consult the CDP website directly; however, we will assess that information if you send it specifically for consideration as part of the documentation provided).
- Sustainalytics accepts for review a company’s disclosure of emissions/water in documents such as the Annual Report or Sustainability Report.
- We also accept for review internal tracking documents.
Timeframe
Centralized indicators follow a specific baseline year. These indicators include:
Carbon research:
- E.1.9 Carbon Intensity
- E.1.10 Carbon Intensity trend
Water research:
- E.1.2.7 Water Intensity
- E.1.2.7.2 Water Intensity Trend
- E.1.2.7.3 Fresh Water Intensity for Generators
AIR emissions research:
- E.1.13 SOx Intensity
- E.1.14 NOx Intensity
Disclosure/Compliance Indicators
- The following disclosure indicators are designed to assess whether companies meet widely recognized reporting standards:
- E.1.2.4 Oil Spill Disclosure and Performance
- E.1.6 Scope of GHG Reporting
- S.1.3.2 Gender Pay Disclosure
- S.2.1.12 Drug Promotion Standards
- S.3.2.3 US Drug Price Transparency
- S.2.1.2 Signatory to Responsible Business Alliance (RBA)
- S.3.2.2 Trial Data Transparency
- S.4.4.2 Systemic Risk Reporting
- G.1.4 Tax Disclosure
- G.2.1 ESG Reporting Standards
- G.2.2 Verification of ESG Reporting
- G.1.3.3 UNEPFI Signatory
- G.1.3.5 Equator Principles Signatory
- G.3.3.1 Transparency on Government Payments
Document Requirements
- All documents for disclosure and compliance indicators should be in the public domain.
Timeframe
In general, the document should provide evidence of the most recent disclosure. This includes any of the following:
- Fiscal year of the assessment.
- Covering the latest information available.
- Covering the last 3 years of assessment in cases where the indicator reveals a trend. However, the last year disclosed should be the year of assessment. For additional details about any specific indicator, please consult Issuer Relations.