Issuer Gateway Knowledge Hub

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Updates to ESG Risk Rating Model

Subindustries Guide

Sustainalytics has updated the ESG Risk Ratings model as part of an annual review by the Methodology and Research teams. The widescale review of the model helps to ensure it remains rigorous and reflective of industry and macro (socio-economic and geo-political) trends and developments. 

The updates, which took effect on November 15, 2022, have been applied to reflect changes or developments within subindustries, and their implications for environmental, social and governance risk. We have reviewed each subindustry to determine whether the list of Material ESG Issues (MEIs) reflect current conditions and the material risks that companies within that subindustry face.

 

What does this mean for your company? 

At the time of your company’s next scheduled ESG Risk Rating annual update, the Sustainalytics analyst assigned to review your company’s ESG-related activities will apply the relevant updated assessment criteria. All companies within your subindustry will be assessed using the same criteria.


Please note, the latest updates to the ESG Risk Ratings model do not constitute an overhaul of the methodology.


The list below outlines the types of (subindustry-specific) updates that we have made: 


Adding an MEI for a subindustry: Sustainalytics considers trends that influence ESG risk exposure for each subindustry, adding these emerging Material ESG Issues to our assessment. 


Removing an MEI for a subindustry: Sustainalytics removes any Material ESG Issues that we believe are no longer relevant to assessing ESG risk exposure for a subindustry. 


Changes to MEI exposure score: A subindustry exposure score assesses a subindustry’s average exposure to a material ESG issue. The score ranges from 2 to 10 for issues considered material, with 2 indicating a low level of exposure and 10 indicating a high level of exposure for a subindustry. ESG issues with a score of below 2 are considered immaterial.


Adding Management Indicators: The annual review helps us identify new management indicators. This process ensures that our research is aligned with expectations within the sustainability arena.


Removing Management Indicators: The review of all management indicators at the subindustry level also helps us to identify those that are no longer relevant to assess the risk exposure of a company. 


 

Identifying your company's subindustry 

1. To check your company's subindustry classification, log into your Issuer Gateway account.

2. On the landing page, see the summary of your company's ESG Risk Rating.

3. The industry/subindustry classifications are listed alongside your company's rank and percentile among peers.

Note: If your company's subindustry is not listed below, it means that we have not made any updates to that subindustry as part of this year's review of the ESG Risk Rating model.

Click on a subindustry to view updates. 

Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
Human Capital​MEI.13​Indicator Added ​Working Hours Policy​S.1.1.1​64-2
Human Capital MEI.13​Indicator Added ​Employee Training​S.1.6.1​781
Human Capital MEI.13​Indicator Added ​Employees - Human Rights​​EV.47​033
Human CapitalMEI.13Indicator Weight ChangeEmployee Turnover RateS.1.5

Previous weight 12.50%

New weight 10.0%

Weight change -2.50%
Human CapitalMEI.13Indicator Weight ChangeHuman Capital DevelopmentS.1.5.2Previous weight 35.00%New weight 30.00%Weight change -5.0%

Details

Working Hours Policy

This indicator assesses a company's commitment to a threshold of maximum hours that employees can work in a day or a week, and it is aligned with the International Labour Organization's (ILO) related conventions. The indicator is being added as part of “MEI. 13 Human Capital” to address the increasingly long working hours observed in the Advertising subindustry. Exceeding maximum working hours can have a direct impact on companies through fines and penalties, as well as a high employee turnover rate. Assessing a company’s policy on maximum working hours provides an indication of its preparedness to mitigate related risks, and of its commitment to employee wellbeing.


Employee Training

This indicator assesses the average number of training days a company provides its workforce in a given fiscal year to build specific knowledge and upgrade skills so that its employees can improve their performance and excel in their roles. The indicator is being activated as part of "MEI. 13 Human Capital" to address the increasing need of companies to have highly skilled employees that require continuous up-skilling. This trend has been observed throughout the Technology, Media and Telecommunication industries, with varying degrees of intensity.

Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
Business Ethics​MEI.4​Change in MEI exposure score -​-​64-2
Carbon-Own Operations MEI.8​Change in MEI exposure score ​--​781

Details

Business Ethics

Agrochemical companies manufacture nitrogenous and phosphatic fertilizers, pesticides, seed, and other agricultural chemical products. For companies in this subindustry, and more generally in the Chemicals Industry, the main areas for unethical conduct are bribery and corruption, political lobbying (to delay regulation for specific substances or product labelling), tax and anti-competitive practices. High-level controversies (Level 3 or above) are not common in the subindustry, with no company (among the 73 subindustry constituents within Sustainalytics' universe) involved in any high-level controversy. Additionally, 92% of constituents are not involved in any business ethics events. Therefore, the low-incident frequency, combined with the low materiality of event, prompted Sustainalytics to reassess the subindustry exposure to Business Ethics and lower the exposure score from 6 to 4.  



Carbon-Own Operations 

Companies in the Agricultural and Fertilizer Chemicals subindustry are primarily engaged in manufacturing fertilizers, pesticides, potash or other agriculture-related chemicals. Materials used can be broadly categorized as nitrogenous (including ammonia) or phosphatic fertilizer compounds. Subindustry constituents consume significant amounts of fossil fuel for energy and additionally as a feedstock in the manufacturing process. Emissions from fossil fuel combustion represent the main source of the industry’s high GHG emissions. Companies involved in the production of ammonia, a key intermediate in nitrogenous fertilizer, are particularly exposed as it is the largest carbon dioxide-emitting process in the chemicals industry, contributing between 1.5 kg to 4.0 kg of CO2 per kg of ammonia. Furthermore, many companies in the subindustry have potash and phosphate mines.

 

Mining as well as the downstream processing of ore is energy intensive. While technical advances, e.g., carbon sequestration and electrolysis fuelled by renewable energy, are expected to lead to emission reductions in the subindustry, these technologies are not yet at scale or widespread. In the short to medium term, it is expected that the current energy-intensive method will continue to produce the vast majority of fertilizers. Additionally, fertilizer demand is expected to grow 1-2% from 2022 to 2025 and companies are expected to increase production to meet this demand, further highlighting the exposure of this subindustry to carbon risks. Moreover, both subindustry average and median carbon intensity is on the same level as Industrial Gasses and significantly higher than the other chemicals subindustries. To reflect this higher level of carbon risk exposure in the subindustry compared to its peer group, Sustainalytics has increased the exposure score to 8 from 7.  


 

     

     

    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change

    Occupational Health and Safety​

    MEI.16​MEI Added -​-​---

    Details

    Occupational Health and Safety

    Companies in the Agricultural Machinery subindustry provide equipment and technologies that are used to improve farming and agriculture performance, including crop growing, harvesting and livestock-raising. In this subindustry, employees are required to control systems and perform manufacturing tasks, some of which are not automated, as well as to install and maintain equipment in the field. Workplace hazards can include injuries from operating dangerous machinery and equipment, injuries from lifting, pushing and pulling heavy loads and handling heavy tools and equipment. Creating an effective safety culture is critical to proactively mitigate safety incidents, which could result in higher healthcare costs, litigation, and work disruption.

     

    In developing countries, where enforcement of health and safety regulations can be weaker than in developed countries, companies may be more exposed to operational disruptions. Existing international guidelines, such as the International Labour Organization’s (ILO) Code of Practice and the EU Machinery Directive on safety and health in the use of machinery, as well as media scrutiny, are driving more companies within this subindustry to adopt stronger health and safety management systems, such as OHSAS 18001. All these factors have prompted Sustainalytics to add Occupational Health & Safety as a material issue for the Agricultural Machinery subindustry. 

    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
    Community Relations​MEI.5​Change in MEI exposure score -​-​65-1
    Carbon-Own Operations MEI.8​Change in MEI exposure score ​--​65-1
    Human Rights - Supply ChainMEI.12.SC​Change in MEI exposure score ​--451
    Resource UseMEI.20Change in MEI exposure score--87-1
    Emissions, Effluents and Waste​MEI.7MEI added--044
    Human CapitalMEI.13MEI removed--40-4
    Community RelationsMEI.5Indicator addedCommunity Relations - SC​EV.38​---
    Human RightsMEI.12Indicator weight change Human Rights Policy​S.4.2.1​

    Previous weight

    40.0%

    New weight

    20.0%

    Weight change

    -20.0%

     
    Human RightsMEI.12Indicator weight change Human Rights Programme​S.4.2.1.2​

    Previous weight

    60.0%

    New weight

    40.0%

    Weight change

    -20.0%

     
    Human RightsMEI.12Indicator addedFreedom of Association Policy​S.1.1​---
    Human RightsMEI.12Indicator addedWorking Hours Policy​S.1.1.1​---
    Human RightsMEI.12Indicator addedDiscrimination Policy​S.1.2​---

    Details

     

    Emissions, Effluents and Waste 

    The Agriculture subindustry is primarily engaged in the production of fruits, vegetables and nuts, and includes crop growers and owners of plantations. Many of these producers use a considerable number of agrochemicals, which are released into the air and land and can potentially reach groundwater. As many agrochemicals are composed of hazardous substances such as chlorides, PCBs and benzene, companies in this subindustry have been exposed to tightening regulatory standards regarding air emissions and effluents disposal in the past few years. In addition, with the Sustainable Finance Disclosure Regulation (SFDR), investment funds are prompted to divest from high-pollutant companies to comply with the SFDR requirements. Failure to appropriately control air emissions and effluent could trigger environmental fines, protests from local communities, and reputational damages. Sustainalytics has added "Emissions, Effluents, and Waste" as a material issue for the Agriculture subindustry as a result of these trends and developments.   

     

    Freedom of Association Policy

    This indicator assesses a company's commitment to ensure that its employees have the right to associate and collectively bargain. Collective bargaining, a negotiation process between employers and employees aimed that aims to form agreements to regulate working salaries, conditions and benefits, should be permitted. The MEI.13 Human Capital was deactivated and a number of its indicators are to be moved to the MEI.12 Human Rights. As such, the indicator is being activated for the Human Rights MEI. The weight of 15.0% is deemed appropriate for the Agriculture subindustry given the set of other MEI associated indicators.

     

    Working Hours Policy​

    This indicator assesses a company's commitment to a threshold of maximum hours employees can work in a day or a week, and it is aligned with the International Labour Organization's (ILO) related conventions. The MEI.13 Human Capital was deactivated (removed), and a number of its indicators are to be moved to the MEI.12 Human Rights. As such, the indicator is being activated (added) for the Human Rights MEI. The weight of 10.0% is deemed appropriate for the Agriculture subindustry given the set of other MEI associated indicators.

     

    Discrimination Policy​

    This indicator assesses a company's commitment to prohibit workplace discrimination and ensure equal opportunity, and it is aligned with the International Labour Organization's (ILO) related conventions. Workplace discrimination on the basis of race, colour, sex, religion, disability, political opinion or national origin could expose the company to legal and reputational risks. Failing to address discriminatory practices in the workplace may result in expensive, time-consuming lawsuits and lasting reputational damage to the company. The MEI.13 Human Capital was deactivated (removed), and a number of its indicators are to be moved to the MEI.12 Human Rights. As such, the indicator is being activated (added) for the Human Rights MEI. The weight of 15.0% is deemed appropriate for the Agriculture subindustry given the set of other MEI associated indicators.

    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
    Carbon-Own Operations MEI.8Indicator removed Fleet AgeE.3.1.20​
    10.0%0.0%-10.0%
    Carbon-Own Operations MEI.8​Indicator added ​Green Outsourced Logistics Programmes​
    E.2.1.6​
    ---
    Occupational Health and Safety​MEI.16​Indicator added ​ ​Contractor Safety Programme​s
    S.2.2.5​
    ---
    Occupational Health and Safety​MEI.16Indicator added ​Contractor Fatalities​
    S.2.2.6​
    ---
    Occupational Health and Safety​MEI.16Indicator weight changeLost Time Incident Rate (LTIR) Trend​
    S.1.6.5​
    27.50%17.5%-10.0%
    Occupational Health and Safety​MEI.16Indicator weight changeEmployee Fatality Rate​
    S.1.6.6​
    20.0%15.0%-5.0% 

    Details

     

    Green Outsourced Logistics Programmes​

    This indicator assesses a company's programmes to reduce and manage the release of GHG emissions from its outsourced logistics services. This includes all fleets of vehicles or logistical activities that are not under the operational control of the company. The indicator is being added as part of "MEI.8: Carbon-Own Operations", due to an increasing number of Air Freight and Logistics companies outsourcing operations and offering integrated logistics services (ILS). Despite this change, environmental impacts along the supply chain, including the release of GHG emissions, can remain high, exposing companies to carbon-related risks. To mitigate such risks, companies can either engage with existing service providers to improve practices or they can seek partnerships with those who offer environmentally sustainable alternatives, including the use of electric vehicles and lower-carbon fuels and technologies.

     

    Contractor Safety Programmes  ​

    This indicator assesses a company's initiatives to manage the health and safety risks of contractors who operate in the company’s own facilities. These initiatives include pre-screening of contractors' safety management during tendering, providing training and collecting statistics. It is being added as part of "MEI.16: Occupational Health and Safety". This is due to the increasing number of Air Freight and Logistics companies outsourcing their operations and offering integrated logistics services (ILS). Although contractors are not part of a company’s workforce, they perform important tasks on site that are key to a company's operations. Because they operate in facilities owned by the contracting company, non-compliance with safety procedures can pose risks not only to contractors but also to the company’s own employees, and potentially leave the company liable if accidents occur. Therefore, companies that rely extensively on the use of contract workers are expected to have programmes in place to manage their safety.

     

     

     

    Contractor Fatalities ​

    This indicator assesses a company's performance with regard to contractor safety by tracking the number of contractor fatalities over the last three years. Contractors are not considered employees and are generally hired by a company to provide services for a specified time period based on the duration of a project. The indicator is being added as part of "MEI.16: Occupational Health and Safety" due to the increasing number of Air Freight and Logistics companies that are outsourcing their operations and offering integrated logistics services (ILS). Although contractors are not part of a company’s workforce, they perform significant tasks on site that are key to the company’s operations. Higher contractor fatalities on operating sites can lead to concerns over the effectiveness of a company’s contractor-safety initiatives and significantly impact the company’s reputation as a safe workplace.

    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
    Carbon-Own Operations MEI.8Change in MEI Exposure Score --​
    781
    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Weight New WeightWeight Change
    Product Governance​MEI.18​Indicator removedService DelaysS.3.1.8​
    ---
    Product Governance​MEI.18​Indicator addedCybersecurity ProgrammeS.3.1.3.3​---
    Emissions, Effluents and Waste​MEI.7​Indicator removedNoise ManagementS.4.2.15​---
    Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Environmental Policy​E.1.1​10.0%15.0%5.0%
    Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Environmental Management System​E.1.2​10.0%20.0%10.0%
    Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​EMS Certification​E.1.3​10.0%20.0%10.0%

    Details

    Cybersecurity Programme 

    This indicator assesses a company's effectiveness in implementing industry-standard cybersecurity management controls to mitigate the risk of incidents and breaches. The indicator is being added as part of "MEI.18: Product Governance" due to a change in trends observed in the past few years. Airports belong to the critical infrastructure systems that must protect passengers and employees but are vulnerable to acts of terrorisms. They must also enforce governmental and local rules. As such, airport security personnel must operate in a fast-paced environment to mitigate security breaches and other critical security challenges, especially in the context of the COVID-19 pandemic when passengers were required to share more sensitive data when travelling. Also, global hybrid warfare introduces cyber threats to critical infrastructure sectors, like airports, during this period of war in Ukraine. Escalating cyber threats and government regulation are driving airports to improve cybersecurity. In this context, the scope of cybersecurity programmes is considered relevant for assessing companies' management of Product Governance.


    Material ESG Issue (MEI)MEI CodeUpdateIndicator NameIndicator Code Previous Exposure ScoreNew Exposure ScoreScore Change
    Resource Use ​​​​MEI.20​Change in MEI Exposure Score ​-​-​​​451
    Community Relations MEI.5Change in MEI Exposure Score ​--561
    Carbon - Own Operations​MEI.8Change in MEI Exposure Score ​--781
    Occupational Health and Safety​MEI.16​Indicator Weight Change​*Health and Safety Management System​S.1.6.2.1​

    Previous weight

    22.5%

    New weight

    25.0%

    Weight change

    2.5%

    Occupational Health and Safety​MEI.16​Indicator Weight Change​**Health & Safety Certifications​S.1.6.4​7.50%20.0%12.5%
    Occupational Health and Safety​MEI.16​Indicator Weight Change​**Lost Time Incident Rate (LTIR) Trend​S.1.6.5​12.50%15.0%2.5%
    Occupational Health and Safety​MEI.16​Indicator Weight Change​**Contractor Safety Programme​S.2.2.5​15.00%12.5%-2.5%
    Occupational Health and Safety​MEI.16​Indicator Weight Change​**Contractor Fatalities​S.2.2.6​15.00%12.5%-2.5%
    Occupational Health and Safety​MEI.16​Indicator Removed ​#Emergency Response Programme​E.1.3.1​12.50%0.0%-12.5%
    Emissions, Effluents and Waste

    MEI.7

    Beta Indicator Removed
    NOx Emissions

    EA.P.18

    ---

     

    Details

    *We synchronized all weights across Mining and Forestry.

    **We redistributed the weights following the deactivation (removal) of Emergency and HIV.

    #We have already used this indicator as part of Emissions, Effluents and Waste. Diluted the Safety Management. Aligned with Utilities.

     

     Material ESG Issue (MEI)MEI CodeUpdateIndicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
    Human Rights - Supply Chain​MEI.12.SC​​​Change in MEI Exposure Score​ ​--231
    Resource Use - Supply Chain​MEI.20.SC​MEI Added--033

     

    Details

    Resource Use - Supply Chain​

    Companies in the Automobiles subindustry primarily engage in the production of passenger automobiles and light trucks, ranging from those with internal combustion engines to electric motors. As the integration of rapid technological advancements within various vehicle systems - such as autonomous driving, infotainment, safety and fuel efficiency - continues to accelerate, companies increasingly depend on chip availability. The pandemic-induced shortage in chips underscores this dependence as it severely impacted the automotive sectors, resulting in production halts, delivery delays and inventory shortages. Increasing demand for electric-battery vehicles (EVs) puts further pressure on chip availability as EVs require up to double the number of chips compared with conventional vehicles. The chip-fabrication process requires large volumes of ultra-pure water during the wafer fabrication process to avoid contamination and remove waste, such as ions, particles, silica and dissolved oxygen.

     

    As automakers rely heavily on suppliers and manufacturers of chips (fabricators), they are exposed to water-scarcity risk inherent in the supply chain. Water scarcity issues related to semiconductor chip manufacturers are exacerbated by geographic location, technological advancements and global growth of the EV market. Despite the water intensity of the chip-fabrication process, many facilities are located in arid or semi-arid regions, particularly in the Asia-Pacific region. As more complex, next-generation chips are expected to require up to 1.5 times more water, fabricators increasingly face water availability risks, which may entail operational risk and higher production costs.

     

    Furthermore, due to the growth of the global electric vehicle market, batteries are expected to account for over 90% of lithium demand by 2030. The water-intensive extraction of lithium can lower groundwater levels, particularly in water-scarce regions. As many lithium companies operate in water-scarce regions such as the lithium triangle (Chile, Argentina and Bolivia) and Australia, lithium extraction contributes to desertification and may result in water shortages for the community. Therefore, lithium producers may face regulatory scrutiny and community opposition leading to delays for new projects or disruption of existing operations. As automobile companies rely on a complex and heavily outsourced supply chain, they may face supply disruptions, higher production costs and an inability to deliver vehicles on time. The elevated operational risk tied to water scarcity issues in the supply chain has prompted us to activate (add) "Resource Use – Supply Chain" as a material issue for the Automobiles subindustry. 

    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
    Business Ethics ​MEI.4​​​Change in MEI Exposure Score ​
    -
     
    -341
    Environmental & Social (E&S) Impact of Products and Services​MEI.9Change in MEI Exposure Score ​--352
    Business Ethics ​

    MEI.4​​​Indicator Added​Community Relations​EV.10​-Event Indicator-
    Business Ethics ​

    MEI.4​​​
    Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
    Business Ethics ​

    MEI.4​​​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-
    E&S Impact of Products and Services​MEI.9​​​​Indicator Weight Change​Responsible Marketing Policy​S.3.1.1​

    Previous weight

    35.0%

    New weight

    25.0%

    Weight change

    -10.0%

    E&S Impact of Products and Services​MEI.9​​​​Indicator Weight Change​Product Health Statement​S.3.1.9​

    Previous weight

    35.0%

    New weight

    10.0%

    Weight change

    -25.0%

    E&S Impact of Products and Services​MEI.9​​​​Indicator Added​Nutrition and Health Programme​S.3.1.16​---

     

    Details

    Community Relations ​and Society - Human Rights​

    Issues related to community relations or societal human rights speak to the way in which a company conducts its business. Over the past few years, we have seen companies face increased scrutiny when it comes to the impact of their business on communities and society at large. We have included this event to capture these risks. 

     

    Nutrition and Health Programme​

    This indicator assesses the strength of a company’s initiatives to address health and nutritional value as well as the impact of its existing and newly developed products. This includes setting quantitative targets and deadlines and providing evidence of monitoring. Increased concern about the impact of processed foods on human health and changing lifestyles has led to a shift in dietary patterns. Excessive consumption of products high in fats, sugar and salt can have negative impacts on human health. The indicator "S.3.1.16 Nutrition and Health Programme" is also a guide to how well a company is managing risks related to societal health impacts from alcohol; for example, through product reformulations (and targets) focusing on low- or non-alcoholic alternatives.



    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
    Human Capital ​MEI.13​Indicator addedWorking Hours PolicyS.1.1.1
    -5.0%-
    Human CapitalMEI.13​Indicator weight changeEmployee Turnover Rate S.1.5​12.50%10.0%-2.5%
    Human Capital ​MEI.13Indicator weight change Human Capital Development S.1.5.2​35.00%30.0%-5.0%
    Human Capital ​MEI.13Indicator added​Employee Training ​E.1.1​-2.5%-
    Human CapitalMEI.13Indicator addedEmployees - Human RightsEV.47---

    Details

    Working Hours Policy

    This indicator assesses a company's commitment to a threshold of maximum hours that employees can work in a day or a week, in alignment with the International Labour Organization's (ILO) related conventions. The indicator is being added alongside the addition of "MEI. 13 Human Capital" to address the increasingly long working hours observed in the Broadcasting subindustry. Exceeding maximum working hours can have direct impacts on companies through fines and penalties, as well as high employee turnover rates. Assessing a company’s policy on maximum working hours provides an indication of its preparedness to mitigate related risks, and its commitment to employee wellbeing.

     

    Employee Training

    This indicator assesses the average number of training days a company provides its workforce in a given fiscal year, to build specific knowledge and upgrade skills so that its employees can improve their performance and excel in their roles. The indicator is being added as part of "MEI. 13 Human Capital" to address the increasing need of companies for the continuous up-skilling of existing highly skilled employees. This trend has been observed throughout the Technology, Media and Telecommunication industries.

    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
    Data Privacy and Security​MEI.6​Change in Exposure Score​--5​4​-1​
    Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​

    Previous weight

    35.00%

    New weight

    32.5%

    Weight change

    -2.5%

    Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-2.5%-
    Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​---

    Details

    Employee Training​

    This indicator assesses the average number of training days a company provides its workforce, in a given fiscal year, to build specific knowledge and upgrade skills so that its employees can improve their performance and excel in their roles. The indicator is being added as part of Material ESG Issue "MEI. 13 Human Capital" to address the increasing need of companies to continue up-skilling their existing base of highly skilled employees. This trend has been observed throughout the Technology, Media and Telecommunication industries.

    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
    E&S Impact of Products and Services​MEI.9​Indicator Added​Responsible Marketing Policy​S.3.1.1​-50.0%-
    E&S Impact of Products and Services​MEI.9​Indicator Removed​Product Health Statement​S.3.1.9​50.00%0.0%-50.0%
    Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​---
    Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​---
    Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​---

    Details

    Responsible Marketing Policy 

    This indicator assesses a company's commitment to market its products and services in a way that protects consumers’ best interests and promotes sustainable choices. Through their marketing activities, companies can influence consumer choices and shape consumer behaviour.

    The Material ESG Issue "Environmental & Social Impact of Products and Services" for Casinos and Gaming companies covers, on the one hand, companies` gaming offering and, on the other, the food products they serve at physical casinos. Indicator "S3.1.1 Responsible Marketing Policy (RMP)" was removed in 2021 due to concerns regarding significant overlap between the indicators S.3.1.14 Responsible Gaming Programme, S.3.1.9 Product Health Statement and S3.1.1 Responsible Marketing Policy. However, reassessment prompted us to reinstate RMP; this indicator assesses how a company promotes its services and covers issues that fall outside the scope of the other two indicators.

    The weight of 50.0% is deemed appropriate for Casinos and Gaming, given the controversial nature of this subindustry and the deactivation of indicator S.3.1.9 Product Health Statement. It is imperative that companies do not aim their marketing and advertising communications at, nor appeal to, underage persons (i.e., any age below the legal age for gambling in any jurisdiction where the communication is targeted). Companies should also carry appropriate warnings about underage gambling. This includes: 

    • Foregoing logos or names of gambling products or services on products intended to be used or worn by underage persons.
    • Not advertising on any websites that children may frequent.
    • 'Age-gating' YouTube and social media content.
    • Not using celebrities or prominent spokespeople in marketing if they are under the age of 25, and persons that are shown, are shown to be gambling responsibly, for example, no links to alcohol and gambling together.
    • Specifying terms associated with offers, offering full terms and including references to responsible gambling helplines or services. 


     


     

      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
      Resource Use​MEI.20​Change in Exposure Score​--6​8​2​
      Community Relations​MEI.5​Indicator Added​Human Rights Programmes​S.4.2.1.2​-15.0%-
      Community Relations​MEI.5​Indicator Added​Human Rights Policy​S.4.2.1​-10.0%-
      Community Relations​MEI.5​Indicator Weight Change​Community Involvement Programmes​S.4.2.2​

      Previous weight

      45.00%

      New weight

      40.0%

      Weight change

      -5.0%

      Community Relations​MEI.5​Indicator Weight Change​Community Development Programmes​S.4.2.11​37.50%22.5%-15.0%
      Community Relations​MEI.5​Indicator Weight Change​Indigenous Rights Policy​S.4.2.9​17.50%12.5%-5.0%

      Details

      Human Rights Programmes

      Many fossil fuel producers – including companies involved in exploration and production activities, along with coal companies – operate in locations with political and/or social instability. Over the past few years, energy companies have faced increasingly material levels of scrutiny for their direct or indirect involvement in human rights violations. We saw this when several energy producers announced their withdrawal from Myanmar in early 2022 over human rights abuses and deteriorating rule of law in the country. Similarly, after Russia’s 2022 invasion of Ukraine, most international energy companies announced plans to exit from their interests in the country amid investor pressure to not indirectly financially support Russia’s war efforts. The investment community’s ability to assess how a company is mitigating risks and impacts posed by the occurrence of human rights violations across its supply chain is of increasing importance.

      The Human Rights Programmes indicator weight has been activated and set to 15% to support investors in understanding how the energy industry is responding to human rights issues and to reflect their significance. The selected indicator weight also achieves alignment with the Diversified Metals and Mining subindustries. 



      Human Rights Policy 

      The Human Rights Policy indicator weight has been activated and set to 10% to support investors in understanding how the energy industry is responding to human rights issues and to reflect their significance. The selected indicator weight also achieves alignment with the Diversified Metals and Mining subindustries and with Integrated Oil & Gas and Exploration and Production subindustries. 


       

        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
        Business Ethics​MEI.4​Change in Exposure Score​--6​4​-2​
        Carbon - Own Operations​MEI.8​Change in Exposure Score​--8​7​-1​

        Details

        Business Ethics

         

        Companies in the Commodity Chemicals subindustry manufacture an extensive range of industrial and basic chemicals, usually on a large scale (made in bulk). For companies in the subindustry, and more generally for the Chemical Industry, the main areas for unethical conduct are bribery and corruption, political lobbying (to delay regulation for specific substances or product labelling), tax and anti-competitive practices. High-level controversies (Level 3 or above) are not common for this subindustry, with only two companies (out of 316) involved in a high-level controversy related to Business Ethics. Additionally, 93% of constituents are not involved in any Business Ethics events. Therefore, the low incident frequency, combined with low materiality of event, prompted us to reassess the subindustry exposure to Business Ethics. We have decreased the risk exposure from 6 to 4 points.


        Carbon - Own Operations

        Companies operating in this subindustry rely heavily on fossil fuels for energy, which is their main source of GHG emissions. Moreover, Commodity chemical production processes require high amounts of energy for heating, cooling, compression, and pumps. As margins are typically smaller and more variable in commodity chemicals compared with specialty chemicals, companies focus on cost-reduction strategies such as energy efficiency improvements to reduce energy consumption and thus improve margins. Additionally, over the past few years we have observed a high level of fuel switching from coal to natural gas by companies in this subindustry, mainly for constituents with headquarters in Europe and the United States. These trends have enabled Commodity Chemical companies to reduce their GHG emissions. Moreover, the average and the median carbon emission intensity for the Commodity Chemical subindustry places it below that of Industrial Gases and Agricultural Chemicals but higher than Specialty Chemicals. We have decreased the exposure score from 8 to 7 to better reflect the carbon risk Commodity Chemicals companies face.


         

          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
          Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Scope of Social Supplier Standards​S.2.1​15.00%12.5%-2.5%
          Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Signatory to Responsible Business Alliance (RBA)​S.2.1.2​-7.5%-
          Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Conflict Minerals Policy​S.2.1.3​15.00%10.0%-5.0%
          Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​35.00%32.5%2.5%
          Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-2.5%-
          Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​---
          Product Governance​MEI.18​Indicator Added​Product and Service Safety Programme​sS.3.1.9.1​-10.0%-
          Product Governance​MEI.18​Indicator Weight Change​Eco-Design​E.3.1.6​35.00%25.0%-10.0%
          Product Governance​MEI.18​Indicator Weight Change​Product Stewardship Programmes​E.3.1.7​35.00%25.0%-10.0%
          Product Governance​MEI.18​Indicator Added​Recycled Material Use​E.2.1.7​-10.0%-

          Details

          Signatory to Responsible Business Alliance (RBA)​

          This indicator assesses whether a company is a member of the Responsible Business Alliance (RBA), formerly known as the Electronic Industry Citizenship Coalition (EICC). This membership demonstrates a company's commitment to support continuous improvement in the social, environmental and ethical responsibility of its supply chain. We have added this indicator as part of "MEI.12.SC Human Rights - Supply Chain" given the increasing importance of RBA and the Responsible Minerals Initiative (RMI). Members of the RBA/RMI are addressing responsible mineral sourcing issues in their supply chains through the monitoring of their suppliers to make sourcing decisions. These initiatives are meant to improve regulatory compliance and support responsible sourcing of minerals and draw on the resources and expertise of the RMI/RBA. The weight of 7.5% is deemed appropriate as it aligns with other subindustries in the Technology Hardware industry.



          Employee Training​

           

          This indicator assesses the average number of training days a company provides its workforce in a given fiscal year, to build specific knowledge and upgrade skills so that its employees can improve their performance and excel in their roles. The indicator is being activated as part of "MEI. 13 Human Capital" to address the increasing need of companies with highly skilled employees to continue providing up-skilling opportunities. This trend has been observed throughout the Technology, Media and Telecommunication industries. The weight of 2.5% is deemed appropriate, as it is in line with other subindustries in the Technology Hardware industry.

           

          Product and Service Safety Programme​

          This indicator assesses a company's initiatives to manage risks related to the safety and reliability of its products and services and ensure that they do not pose health and safety hazards to customers. These initiatives include managerial oversight, regular product-safety risk assessments and employee training. The indicator is being activated as part of "MEI.18 Product Governance" due to the increasing relevance of risks related to the safety and reliability of products for Communication Equipment companies. Design defect litigation can be very expensive, and any product defect or unsecure service could jeopardize users' safety, potentially leading to expensive product recalls as well as product liability lawsuits. In addition, studies show that companies that have a robust product and service safety programme tend to identify and anticipate related risks better and retain customers' loyalty. The weight of 10.0% is deemed appropriate as it aligns with the Technology Hardware subindustry, which faces similar issues related to product defects.

           

          Recycled Material Use

          This indicator assesses a company's performance with regard to the share of recycled or reused raw materials in its manufacturing operations. The indicator is being added as part of "MEI.18 Product Governance" due to the increasing relevance of recycled material use for technology companies. Recycled materials and practices related to the circular economy can help tech companies to lower emissions and tap a supply of finite materials. In addition, old electronics contain many valuable materials which often go to waste and can be a huge opportunity for companies. The weight of 10.0% is deemed appropriate as it aligns with other subindustries in the technology industry.

            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
            Data Privacy and Security

            MEI.6​MEI Added ​--044
            Data Privacy and SecurityMEI.6​Indicator Added​
            Data Privacy & Security Policy

            S.3.1.3

            Previous Weight -

            New Weight

            20.0%

            Weight Change -
            Data Privacy and SecurityMEI.6​Indicator Added
            Cybersecurity Programme

            S.3.1.3.3

            -40.0%-
            Data Privacy and Security​MEI.6Indicator Added ​
            Data Privacy Programme


            S.3.1.3.1

            -40.0%-
            Data Privacy and Security​MEI.6​Indicator Added​
            Data Privacy and Security

            EV.27

            -Event Indicator-
            Business Ethics

            MEI.4Indicator Added​
            Community Relations

            EV.10

            -Event Indicator-
            Business Ethics​MEI.4Indicator Added​
            Society - Human Rights

            EV.48

            -Event Indicator-
            Business Ethics​MEI.4Indicator Weight Change​
            Community Relations - SC

            EV.38

            -Event Indicator-

            Details

            Data Privacy and Security 

            Consumer Electronics companies are primarily engaged in manufacturing and selling consumer electronics products, including televisions, Internet streaming devises and game consoles. Over the past years, especially through the COVID19 pandemic, we have seen an increase in the revenue that is derived via online channels for companies in the SI, considerably increasing their exposure to Data Privacy and Security (DP&S) risks. This ongoing trend makes food retailers significantly exposed to sensitive data (especially personal consumer and payment information) and digitized systems. The consideration of these factors has prompted us to add the DP&S MEI for the Consumer Electronics SI with an exposure score of 4, especially considering that companies are still working to understand and mitigate risks surfacing from an increased use of online channels. The proposed score in line with the scoring model and other consumer goods subindustries.



             

             

              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
              Resilience​MEI.19​MEI Added​--0​4​4​
              Resilience​MEI.19Indicator Added 
              Systemic Risk Management

              S.4.4.1

              Previous Weight New Weight 22.5%Weight Change -
              Resilience​MEI.19Indicator Added 
              Systemic Risk Reporting

              S.4.4.2

              -22.5%-
              Resilience​MEI.19Indicator Added 
              Tier 1 Capital Buffer

              S.4.4.3

              -25.0%-
              Resilience​MEI.19Indicator Added 
              Leverage Ratio

              S.4.4.5

              -22.5%-
              Resilience​MEI.19Indicator Added 
              Asset Quality

              S.4.4.8

              -7.5%-
              Resilience​MEI.19Indicator Added 
              Resilience

              EV.29

              -Event Indicator-

               

              Details

              Resilience 

              The Consumer Finance subindustry is comprised of companies that provide consumer finance services, including personal credit, credit cards, lease financing, travel-related money services, and pawn shops. Large consumer finance companies have similar capital requirements as large, diversified banks, underlining their comparable importance in the economy and their required resilience of operations. This is relevant in case of a bailout to understand the impact on taxpayers. For example, Consumer Finance companies such as American Express and Lease Plan have a CET1 requirement (which signals the banks’ ability to absorb losses) of 9% and 9.5%, respectively. This is similar to large, diversified banks such as Bank of America and ING Bank, which have a CET1 requirement of 11.5% and 10.5%, respectively. The occurrence of impactful economic events, such as a recession or pandemic, demonstrate that consumer finance companies are susceptible to considerable financial impairment. As an example, American Express Co., one of the largest in the subindustry in terms of customer base and revenue, experienced a 39% drop in revenues in Q4 of 2020, as the business model is dependent on consumer spending for revenue. Should a consumer finance company experience extreme financial difficulty, it is subject to similar assistance from governments as diversified banks. For example, the consumer finance company Lease Plan was bailed out by the Dutch government and received EUR1.5 billion in 2008. In the case of a bailout, the taxpayer becomes impacted. If a bailout or buyout is not possible, impacted stakeholders consist also of investors and depositors. For these reasons, we are activating Resilience as a Material ESG Issue (MEI) for the Consumer Finance subindustry. 

               

                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​---
                Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​---
                Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​---

                Details

                Community Relations, Society - Human Rights, Community Relations

                Issues related to community relations or human rights speak to the way in which a company conducts its business. Over the past few years, we have seen companies face increased scrutiny when it comes to the impacts of their business on communities and society at large. Therefore, to capture these risks, we have included these events under Business Ethics.

                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                Carbon - Own Operations​MEI.8​MEI Added​--0​2​2​
                Carbon - Own Operations​MEI.8​Indicator Added 
                Environmental Policy

                E.1.1

                Previous Weight -New Weight 2.5%Weight Change
                Carbon - Own Operations​MEI.8​Indicator Added 
                Environmental Management System

                E.1.2

                -10.0%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                EMS Certification

                E.1.3

                -5.0%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                Scope of GHG Reporting

                E.1.6

                -2.5%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                GHG Risk Management

                E.1.6.1

                -15.0%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                GHG Reduction Programme

                E.1.7.0

                -20.0%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                Renewable Energy Programmes

                E.1.8
                -20.0%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                Carbon Intensity

                E.1.9

                -5.0%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                Carbon Intensity Trend

                E.1.10

                -10.0%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                Renewable Energy Use

                E.1.11

                -10.0%-
                Carbon - Own Operations​MEI.8​Indicator Added 
                Energy Use and GHG Emissions

                EV.15

                -Event Indicator-
                Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​
                37.50%

                32.5%  
                -5.0%

                Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-5.0%-
                Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                Details

                Carbon - Own Operations​

                Constituents in the Data Processing subindustry primarily provide commercial electronic data processing and/or business process outsourcing services, including data management, warehousing, recovery and back-up services. Data centres are becoming an integral part of the data processing industry's growth and innovation strategy. The tremendous volume of data transmitted to process transactions depend on integrated data centre infrastructure. Data centres have traditionally been energy intensive, potentially consuming 10 or even 50 times the energy of a typical commercial office building, according to the US Department of Energy. Along with the energy intensity of these facilities, data centre development costs may run into the billions, along with recurring maintenance costs. As a result, companies need to develop strategies to manage the operational burden of data centre infrastructure, while capturing the opportunities it provides. Therefore, we have added this Material ESG Issue (MEI) for the Data Processing subindustry to better reflect carbon-risk exposure and to maintain alignment with other subindustries in the technology, media and telecommunication sector.

                 


                 

                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                  E&S Impact of Products and Services​MEI.9​Change in Exposure Score​--2​3​1​
                  Data Privacy and Security​MEI.6​Change in Exposure Score​--2​4​2​
                  Product Governance​MEI.18​MEI Added​--0​3​3​
                  Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​

                  Previous weight

                  45.00%

                  New weight 40.0%Weight change -5.0%
                  Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-

                  Details

                  Product Governance 

                  Owners and operators of department stores and stores offering diversified general merchandise are primarily engaged in the retail sale of a variety of merchandise in the low and popular price ranges, used merchandise, antiques or second-hand goods. Following our analysis, we have increased the exposure score of this subindustry to reflect the high frequency of Product Governance-related events or controversies involving 46% of subindustry constituents. We have activated the Product Governance MEI to align exposure for the Department Stores subindustry with the Food Retailers subindustry considering the event indicators "Quality and Safety", and "Marketing Practices" are common to both subindustries. 

                   

                  Social Supplier Certification​

                  Supplier Certifications are becoming increasingly relevant and tracking company performance on this matter is relevant to risk mitigation.

                   

                  Supply Chain Management

                  We have reduced the weighting of this indicator to account for the addition of Supplier Certification. 

                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                    ESG Integration - Financials​MEI.17​Indicator Weight Change​PRI Signatory​G.1.3.1​2.50%7.5%5.0%
                    ESG Integration - Financials​MEI.17​Indicator Weight Change​Equator Principles Signatory​G.1.3.5​7.50%2.5%-5.0%

                    Details

                    PRI Signatory and Equator Principles Signatory

                     

                    Equator Principle's (EP) scope is limited to project financing, which is a small sub-section of financing activities, but also to new energy projects (it does not apply to existing projects). The EP standards also vary depending on whether the project is in a developed or developing country. Less strict standards are applied for developing countries, although the majority of violations/misconducts occur in developing countries. All these limitations in scope raise questions on the efficacy and robustness of the EP standards. PRI signatories that don’t meet the minimum requirements of the PRI standards are delisted, after a 2-year engagement period, and mentioned on the PRI website. This provides evidence of a robust process to track disclosures in alignment with the commitment to PRI standards. 


                     

                     

                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                      ESG Integration - Financials​MEI.17​Indicator Weight Change​Equator Principles Signatory​G.1.3.5​7.5%2.5%-5.0%

                      Details

                      Equator Principles Signatory​

                      Equator Principle's (EP) scope is limited to project financing, which is a small sub-section of financing activities, but also to new energy projects (it does not apply to existing projects). The EP standards also vary depending on whether the project is in a developed or developing country. Less strict standards are applied for developing countries, although the majority of violations/misconducts occur in the developing countries. All these limitations in scope raise questions on the efficacy and robustness of the EP standards. PRI signatories that don’t meet the minimum requirements of the PRI standards are delisted, after a 2-year engagement period, and mentioned on the PRI website. This provides evidence of a robust process to track disclosures in alignment with the commitment to PRI standards. 

                       


                       

                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                        Business Ethics​MEI.4​Change in Exposure Score​--6​4​-2​
                        Carbon - Own Operations​MEI.8​Change in Exposure Score​--8​7​-1​

                        Details

                        Business Ethics 

                        Diversified Chemicals manufacturing companies have a diverse product offering that can include commodity chemicals, specialty chemicals and agricultural chemicals. For companies in this subindustry, and more generally in the Chemical Industry, the main areas for unethical conduct are bribery and corruption, political lobbying (to delay regulation for specific substances or product labelling), tax and anti-competitive practices. High-level controversies (Level 3 or above) are not common in this subindustry, with only one company (out of 66) involved in a high-level controversy related to Business Ethics. Additionally, 86% of constituents are not involved in any business ethics events. Therefore, the low incident frequency, combined with low materiality of this event, prompted us to reassess the subindustry exposure to Business Ethics. We decreased the risk exposure from 6 to 4 points.


                        Carbon - Own Operations

                        Companies operating in this subindustry rely heavily on fossil fuels for energy, which is the main source of their GHG emissions. The bulk continuous production processes require high amounts of energy relying on fossil fuel combustion and purchased electrical energy, thus driving the subindustry’s high carbon intensity.

                        Companies that have a high proportion of specialty products, such as resins, specialty polymers, catalysts and battery materials, are likely to have lower overall emissions and intensity due to their smaller scale and batch operations. The rebound in M&A activity in chemicals over the past two years had two strong underlying drivers, ubiquitous capital and portfolio realignment to foster growth. Strong M&A tailwinds prevailed despite pandemic-related uncertainty due to central bank monetary easing and major "dry powder" (funds kept in reserve) at private equity funds. Simultaneously, many subindustry constituents have been streamlining their portfolio by divesting non-core businesses and consolidating certain specialties segments, such as paints and coatings. As a result, the overall subindustry's carbon intensity has trended downwards. Therefore, we have decreased the risk exposure from 8 to 7 points for the Diversified Chemicals subindustry to reflect the downward trend in carbon intensity and to reflect a lower risk exposure compared with Agricultural Chemicals and Industrial Gases. 

                         

                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                          ESG Integration - Financials​MEI.17​Change in Exposure Score​--6​7​1​
                          Data Privacy and Security​MEI.6​Change in Exposure Score​--6​7​1​

                          Details

                          ESG Integration - Financials​

                          Diversified Insurers have interests in multiple business lines, including life, health, and property and casualty (P&C) insurance. Diversified insurers carry relatively higher ESG Integration risks versus standalone life and P&C players, considering their more complex business mix.

                          The major underlying ESG Integration-Financials issues for insurance companies are 1. Physical Climate Change and 2. Responsible Investing. The first speaks more to P&C insurance and reinsurance while the latter is mainly in the field of life insurance. Since diversified insurance companies have different business lines in these insurance activities, the combination of the ESG Integration-Financials risks makes them relatively more exposed. The consideration of those factors indicates that the current exposure score (6) underestimates the risks related to business ethics for Diversified Insurance Services companies, prompting us to increase it by one point, to a new exposure score of 7.



                          Data Privacy and Security​

                          Diversified Insurers face increasing risk to Data Privacy and Security issues due to the continuously growing volume of highly sensitive personal information that they collect, especially personal identification numbers and health information. Moreover, due to the essential nature of their business to society, diversified insurers have been identified as ‘Critical Infrastructure’ assets. Additionally, companies in this subindustry are exposed to tightening regulatory standards with regards to data privacy and security (e.g. EU-GDPR) and increased cyber security risks due to geopolitical tensions. The consideration of these factors indicates that the current exposure score (6) underestimates the risks related to data privacy and security for Diversified Insurance Services companies, prompting us to increase it by one point, to a new exposure score of 7.


                           

                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                            Land Use and Biodiversity​MEI.14​Change in Exposure Score​--3​4​1​
                            Occupational Health and Safety​MEI.16​Indicator Removed​*HIV/Aids Programmes​S.1.6.3​

                            Previous Weight 

                            5.00%

                            New Weight 0.0%Weight Change -5.0%
                            Occupational Health and Safety​MEI.16​Indicator Weight Change​#Health and Safety Management System​S.1.6.2.1​20.00%25.0%5.0%
                            Occupational Health and Safety​MEI.16​Indicator Weight Change​#Health & Safety Certifications​S.1.6.4​7.50%20.0%12.5%
                            Occupational Health and Safety​MEI.16​Indicator Weight Change​#Lost Time Incident Rate (LTIR) Trend​S.1.6.5​12.50%15.0%2.5%
                            Occupational Health and Safety​MEI.16​Indicator Weight Change​#Contractor Safety Programme​S.2.2.5​15.00%12.5%-2.5%
                            Occupational Health and Safety​MEI.16​Indicator Removed​Emergency Response Programme​E.1.3.1​12.50%0.0%-12.5%

                            Details

                            Land Use and Biodiversity

                            Companies operating in the Diversified Metals Mining subindustry engage in the production or extraction of metals including, but not limited to, nonferrous metal mining (except aluminum), salt and borate mining, phosphate rock mining, metallurgical (coking) coal mining used for steel production. Whether underground or open pit, mines have a large environmental footprint and their construction and supporting infrastructure significantly alters landscapes and disrupts the habitat of flora and fauna. Over the past couple of years, the biodiversity loss issue has received increased attention, as impacted communities and global civil society organizations continue to highlight its social and environmental costs, and NGO reports, journalist investigations and media coverage of the issue have increased.

                            Investment firms begin to measure and report their impacts on biodiversity, which could have direct implications for industries that threaten biodiversity or high conservation value environments. As such, some major investment firms have expressed their interest in two new financial frameworks on biodiversity loss (the Task Force on Nature-related Financial Disclosures, TNFD, and the Partnership for Biodiversity Accounting Financials, PBAF).

                            Within the past 3-5 years, we have also seen an increase in the frequency and scale of protests against the approval of new mining projects, often related to biodiversity and land-use issues. Severe environmental breaches can result in denied, suspended or revoked mining permits and millions in unplanned rehabilitation costs. These trends bring Diversified Metals Mining companies toward the medium side of the spectrum in terms of Land Use and Biodiversity risks. We are therefore increasing the exposure score for the Subindustry to 4 to better reflect the risks Diversified Metals Mining companies face, in line with other mining subindustries. 

                             


                             

                            *Not relevant for safety; Retained within Human Capital across mining subindustries.

                            #Redistributed the weights from Emergency and HIV deactivation.

                             

                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                              Business Ethics​MEI.4​Change in Exposure Score​--5​6​1​
                              Occupational Health and Safety​MEI.16​Change in Exposure Score​--2​3​1​
                              Product Governance​MEI.18​Indicator Added​Cybersecurity Programme​S.3.1.3.3​-10.0%-
                              Product Governance​MEI.18​Indicator Weight Change​Product and Service Safety Programme​S.3.1.9.1​Previous weight 50.00%New weight 40.0%Weight change -10.0%
                              Product Governance​MEI.18​Indicator Added​Data Privacy and Security​EV.27​---

                              Details

                              Cybersecurity Programme​

                              Cybersecurity is an emerging issue in the real estate industry and diversified real estate companies should have a cybersecurity programme to better manage their product and customer-related risks.

                               

                               

                              Data Privacy and Security

                              We believe that potential events on data privacy and security, which might have an impact on customers and pose risks for companies, should be captured.

                                1. Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                  Human Capital​MEI.13​Change in Exposure Score​--4​3​-1​
                                  Carbon - Own OperationsMEI.8Beta Indicator RemovedCarbon Solutions OfferingEA.P.9---

                                2.  

                                3. Details

                                  Human Capital 
                                   

                                  Companies in the Electric Utilities subindustry produce and distribute electricity from non-renewable sources to customers via transmission and distribution systems. Within the classification, Electric Utilities cover several types of businesses – distribution of power to retail, residential, commercial and industrial end-users, long distance transmission of power and electricity generation. Material risk exposure to Human Capital is driven primarily by two risk factors:

                                   

                                   

                                  1. Labour intensity: the amount of human capital a subindustry has at its disposal on average. 

                                  2. Labour skills: the level of average skill or training required by employees in a subindustry.

                                   

                                  Our research suggests that labour- and skill -intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenues per employee and labour costs per employee. This has prompted us to decrease the exposure for the subindustry to better reflect the risk that Electric Utilities companies face in terms of hiring, development and retention of employees, in line with other Utilities subindustries. 

                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                Resource UseMEI.20Change in Exposure Score--462
                                Business EthicsMEI.4Indicator AddedSociety - Human RightsEV.48-Event Indicator-

                                Details

                                Resource Use

                                Companies in the Electronic Components subindustry are primarily engaged in manufacturing electronic components that control the flow of electric current or the sending, supplying, receiving, magnifying or conversion of electrical signals. The main driver of resource use risk in the Electronic Components subindustry is reliance on non-water natural resources, though water is also an important consideration given its usage by the subindustry.

                                The subindustry exposure score for non-water resources is based on global resource scarcity and global supply concentration risk. Electronic component manufacturers' overall production costs are determined by raw material cost and availability. For instance, the cost of manufacturing connectors and resistors is impacted by the price of copper, gold and lead. Electronic component manufacturing companies serve as tier 2 suppliers for Original Device Manufacturers (ODMs). Customers have strategies to manage raw material supply and track physical scarcity, geopolitical threats to availability, and the cost of raw materials. These strategies influence procurement practices and the management of raw materials by electronic component manufacturers. Electronic component manufacturers rely on large quantities of water for cleaning components, and certain component manufacturing activities require ultra-pure water. Cleaning and rinsing with water or water-based media are essential to remove impurities; ineffective rinsing can cause product defects. Manufacturing typically takes place in East Asia, where water scarcity is prevalent in certain regions. Electronic components manufacturers could experience operational disruption due to water scarcity and/or regulatory limitations on water use. Therefore, we have increased the Resource Use exposure score to 6 for the Electronic Components subindustry to better reflect inherent exposure to resource use risk. 

                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                  Product Governance​MEI.18​Change in Exposure Score​--2​3​1​
                                  Product Governance​MEI.18​Indicator Weight Change​Eco-Design​E.3.1.6​Previous weight 35.00%New weight 30.0%Weight change -5.0%
                                  Product Governance​MEI.18​Indicator Weight Change​Product Stewardship Programmes​E.3.1.7​35.00%30.0%-5.0%
                                  Product Governance​MEI.18​Indicator Added​Recycled Material Use​E.2.1.7​-10.0%-
                                  Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Scope of Social Supplier Standards​S.2.1​Previous weight 15.00%New weight 12.5%Weight change -2.5%
                                  Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Signatory to Responsible Business Alliance (RBA)​S.2.1.2​-7.5%-
                                  Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Conflict Minerals Policy​S.2.1.3​15.00%10.0%-5.0%

                                  Details

                                  Product Governance

                                   

                                  Manufacturers of electronic equipment and instruments are primarily engaged in manufacturing devices, such as physical properties testing equipment or instrumentation for detection, measurement or monitoring purposes. A large proportion of companies in the Electronics Equipment subindustry manufacture equipment for sensitive end-use applications, such as aerospace, automotive, military and medical devices.

                                  The development of equipment with sensitive end-use applications corresponds with moderately elevated customer expectations related to quality and safety. In case of functional deficiency or critical vulnerability linked to a component or device used in these applications, companies could face significant legal and reputational repercussions. Currently, we account for the elevated risk associated with Product Governance issues via a beta overlay of 0.10 for 25 out of 34 companies (74%) in the subindustry that are linked to sensitive end-use applications. We have increased the exposure score from 2 at present to 3 to better reflect product governance risk.


                                  Recycled Material Use

                                  This indicator is typically only used or activated for Resource Use. Resource Use is not activated for this subindustry; however Recycled Material Use is becoming a very important indicator for sustainability within technology companies that are trying to reduce their environmental impact and appeal to consumers looking for products with a lower environmental footprint. Technology companies see recycled materials and the circular economy as a way to lower emissions and tap a supply of finite materials. Old electronics contain many valuable materials which often go to waste. This can be a huge opportunity for companies.

                                   

                                   

                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                    Carbon - Own Operations​MEI.8​MEI Added​--0​3​3​
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    Environmental Policy

                                    E.1.1

                                    Previous weight

                                    -

                                    New weight* 2.5%

                                    Weight change

                                    -

                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    Environmental Management System

                                    E.1.2

                                    -10.0%-
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    EMS Certification

                                    E.1.3

                                    -
                                    5.0%

                                    -
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    Scope of GHG Reporting

                                    E.1.6

                                    -
                                    2.5%

                                    -
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    GHG Risk Management

                                    E.1.6.1

                                    -
                                    15.0%

                                    -
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    GHG Reduction Programme

                                    E.1.7.0

                                    -20.0%-
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    Renewable Energy Programmes

                                    E.1.8

                                    -20.0%-
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    Carbon Intensity

                                    E.1.9

                                    -5.0%-
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    Carbon Intensity Trend

                                    E.1.10

                                    -10.0%-
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    Renewable Energy Use

                                    E.1.11

                                    -10.0%-
                                    Carbon - Own Operations​MEI.8​Indicator Added
                                    Energy Use and GHG Emissions

                                    EV.15

                                    -Event Indicator-
                                    Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-

                                    Details

                                    Carbon - Own Operations​

                                    Constituents of the Electronics Manufacturing subindustry exclusively produce for the OEM (Original Equipment Manufacturers) and are primarily engaged in manufacturing electronic devices and components, prototypes or pre-production models, and related outsourced services. They also manufacture equipment used for manufacturing electronics equipment and components and printed circuit boards.

                                    The carbon intensity of companies tested within the Electronic Manufacturing subindustry are in line with or higher than the carbon intensity medians for Internet Software and Services, Tech Hardware and Aerospace and Defense where this Material ESG Issue (MEI) has already been activated. However, the carbon intensity of the Electronic Manufacturing companies tested is significantly lower than the carbon intensity industry medians of subindustries such as Construction Materials, Utilities and Transportation. Electronic Manufacturing companies face regulatory risks related to carbon and must meet current and new carbon-related laws and regulations. New regulations could result in higher costs for companies, through for example, a higher carbon tax.

                                    Additionally, customers of Electronic Manufacturing companies, such as Apple, are increasingly requiring their suppliers to improve their environmental performance/level of GHG emissions. Scope 1 emissions for Electronic Manufacturing companies can include the use of natural gas for heating, diesel for back-up generators, fire pumps and company-owned vehicles. Scope 2 emissions can include electricity used in its facilities and operations. Therefore, we have added the Carbon – Own Operations MEI to account for carbon emissions from the electronic manufacturing process. 

                                     

                                    *Weights are in line with other manufacturing subindustries within the SIs within the Technology, Media, Telecommunications (TMT) sector. 

                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                      Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--2​4​2​
                                      Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                      Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                      Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-
                                      Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​Previous weight 45.00%New weight 40.00%Weight change -5.0%
                                      Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-

                                      Details

                                      Data Privacy and Security​

                                      Manufacturers of electronic equipment and instruments are primarily engaged in manufacturing devices such as physical properties testing equipment or instrumentation for detection, measurement or monitoring purposes. A large proportion of companies in the Electronics Equipment subindustry manufacture equipment for sensitive end-use applications, such as aerospace, automotive, military and medical devices. The development of equipment with sensitive end-use applications corresponds with moderately elevated customer expectations related to quality and safety. In case of functional deficiency or critical vulnerability linked to a component or device used in these applications, companies could face significant legal and reputational repercussions. Currently, we account for the elevated risk associated with Product Governance issues via a beta overlay of 0.10 for 25 out of 34 companies (74%) in the subindustry, that are linked to sensitive end-use applications. We have increased the exposure score from 2 to 3 to better reflect this risk.



                                      Community Relations​, Society - Human Rights​, Supply Chain Management​

                                      Issues related to community relations or human rights in society speak to the way in which a company conducts its business. Over the past few years, we have seen companies face increased scrutiny when it comes to the impact of their business on communities and society at large. Therefore, to capture these risks, we have included these events under Business Ethics.


                                      Social Supplier Certification​

                                      Supplier Certifications are becoming increasingly relevant and tracking company performance on this matter is relevant to risk mitigation.

                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                        Business Ethics​MEI.4​Change in MEI Exposure Score​--3​4​1​
                                        Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--8​7​-1​
                                        Carbon - Own Operations​MEI.8​Indicator Weight Change​Environmental Management System​E.1.2​Previous weight 5.00%New weight 10.0%Weight change 5.0% 
                                        Carbon - Own Operations​MEI.8​Indicator Weight Change​EMS Certification​E.1.3​2.50%5.0%2.5%
                                        Carbon - Own Operations​MEI.8​Indicator Weight Change​Scope of GHG Reporting​E.1.6​10.00%2.5%-7.5%
                                        Carbon - Own Operations​MEI.8​Indicator Weight Change​GHG Risk Management​E.1.6.1​20.00%15.0%-5.0%
                                        Carbon - Own Operations​MEI.8​Indicator Weight Change​Renewable Energy Programmes​E.1.8​10.00%20.0%10.0%
                                        Carbon - Own Operations​MEI.8​Indicator Weight Change​Carbon Intensity​E.1.9​10.00%5.0%-5.0%
                                        Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​37.50%32.5%-5.0%
                                        Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-5.0%-
                                        Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                                        Details

                                        Business Ethics

                                        Enterprise and Infrastructure Software companies are mainly engaged in developing and producing software designed for specialized applications for the business or consumer market, including enterprise and technical software. In recent years, companies in this subindustry have been involved in an increasing number of Business Ethics controversies. Common issues include accounting and taxation, anti-competitive practices and intellectual property. In addition, dominant players in the subindustry have been investigated multiple times for abuse of market dominance, such as favoring their own services and products in partnership agreements, and are being targeted by regulators, particularly in the European Union, for tax optimization strategies. Due to the importance of safeguarding proprietary technology, intellectual property (IP) is a risk factor and can expose companies to patent litigation. In addition, we believe that this subindustry's exposure should be more closely aligned with the Internet Software and Services subindustry, which is exposed to similar Business Ethics risks (however, it has experienced a larger number of related events). The consideration of those factors indicates that the current exposure score (3) underestimates the risks related to business ethics for Enterprise and Infrastructure Software companies, prompting us to increase it by one point, to a new exposure score of 4. 



                                        Data Privacy and Security

                                        Sustainalytics' research indicates that although companies in the Enterprise and Infrastructure Software subindustry are considerably exposed to many of the typical exposure drivers behind Data Privacy and Security risk, (e.g., Data Exposure, Digitization, Critical Infrastructure), they are slightly less risky than the Internet Software and Services subindustry given the lower exposure to business-to-consumer (B2C) operations. The consideration of these factors indicates that the current exposure score (8) slightly overestimates the risks related to Data Privacy and Security for Enterprise and Infrastructure Software companies, prompting us to decrease it by one point, to a new exposure score of 7. 

                                         

                                         

                                        Employee Training

                                        Sustainalytics has added this indicator to address the need of highly skilled employees that require continuous upskilling; We are setting this at 5% instead of 2.5% to emphasize the importance of upskilling in the software and services industry.

                                         

                                         

                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                          Product Governance​MEI.18​MEI Added​--0​2​2​
                                          Product Governance​MEI.18Indicator Added
                                          Responsible Marketing Policy

                                          S.3.1.1

                                          -New Weight 15%-
                                          Product Governance​MEI.18Indicator Added
                                          Advertising Ethics Policy

                                          S.3.1.2

                                          -15%-
                                          Product Governance​MEI.18Indicator Added
                                          Editorial Guidelines

                                          S.3.1.6

                                          -15%-
                                          Product Governance​MEI.18Indicator Added
                                          QMS Certifications

                                          S.3.2.1

                                          -55%-
                                          Product Governance​MEI.18Indicator Added
                                          Marketing Practices

                                          EV.24

                                          -Event Indicator-
                                          Product Governance​MEI.18Indicator Added
                                          Media Ethics

                                          EV.25

                                          -Event Indicator -
                                          Product Governance​MEI.18Indicator Added
                                          Quality and Safety

                                          EV.28

                                          -Event Indicator -
                                          Product Governance​MEI.18Indicator Added
                                          Social Impact of Products

                                          EV.32

                                          -Event Indicator -
                                          Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator -
                                          Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​37.5%32.5%-5.0%
                                          Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-5.0%-
                                          Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                                          Details

                                          Product Governance

                                          Constituents of the Entertainment Software subindustry primarily manufacture home entertainment software and educational software, including entertainment in the form of games in digital format, disc format or cartridges used in desktop computers or video-game console systems. Quality and safety controversies are known to occur in the subindustry and product defects, or design flaws can result in financial costs in the form of litigation, repair costs or regulatory fines.

                                          Other risks related to video games concern the impact on mental health. In August 2021, the Chinese government instituted a weekly time limit for minors playing video games to protect against mental health disorders. Some countries are contemplating instating similar restrictions (for example, Singapore). Similarly, in India, calls for large-scale video-game restrictions are on the rise following media coverage that linked anti-social, suicidal and homicidal behaviour in minors to the playing of video games. Therefore, we have added Product Governance as a Material ESG Issue for this subindustry. 



                                          Employee Training

                                          This indicator assesses the average number of training days a company provides its workforce in a given fiscal year, to build specific knowledge and upgrade skills so that its employees can improve their performance and excel in their roles. The indicator is being activated as part of the MEI. 13 Human Capital to address the increasing need of companies to have highly skilled employees that require continuous up-skilling. This trend has been observed throughout the Technology, Media and Telecommunication industries, with varying degrees of intensity.


                                          Responsible Marketing Policy

                                          Responsible Marketing is important in this subindustry; companies that disclose factual and comprehensive information about the features of their products and services, educate consumers about their safe use and provide sustainability-related information beyond legal requirements demonstrate a commitment to act in consumers’ best interest and to promote healthier and more environmentally friendly choices. 

                                          Advertising Ethics Policy

                                          Advertisements are often broadcast on digital platforms - platforms that host advertisements for third parties are responsible for the content that they air. False, misleading or offensive advertisements can have a negative social impact and lead to fines and penalties, in addition to legal action from viewers. 

                                           

                                          Editorial Guidelines

                                          Companies that create content and disseminate information should adopt policies or content guidelines that provide staff with a set of relevant ethical standards to which the company aspires.

                                           

                                          QMS Certifications

                                          Ensuring the highest quality of a company’s products and services translates into customer safety and satisfaction and can guard against product recalls or replacements. Companies with a robust Quality Management System (QMS) tend to be well equipped to manage the impact of their products and services in the customer use phase. A QMS certified to a reputable international standard is proof of conformity with stringent quality requirements, which can increase customers’ confidence in the products and services they use, and can reduce the risk of quality-related issues for the company.

                                           

                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                            E&S Impact of Products and Services​MEI.9​MEI Added​--0​3​3​
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Responsible Marketing Policy

                                            S.3.1.1

                                            Previous Weight -New Weight 10.0%Weight Change -
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Solid Waste Management

                                            E.1.2.6.1

                                            -10.0%-
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Food & Beverage Sustainability Initiatives

                                            E.2.1.5

                                            -
                                            5.0%

                                            -
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Sustainable Food Programmes

                                            E.2.1.9

                                            -
                                            10.0%

                                            -
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Sustainable Products & Services

                                            E.3.1.1

                                            -
                                            10.0%

                                            -
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Organic Products

                                            E.3.1.8

                                            -10.0%-
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            GMO Policy

                                            E.3.1.9

                                            -10.0%-
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Hazardous Products

                                            E.3.1.16

                                            -5.0%-
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Environmental Impact of Products

                                            EV.17

                                            -Event Indicator-
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Social Impact of Products

                                            EV.32

                                            -Event Indicator-
                                            E&S Impact of Products and Services​MEI.9​Indicator Added 
                                            Nutrition and Health Programme

                                            S.3.1.16

                                            -25.0%-
                                            Land Use and Biodiversity - Supply Chain​MEI.14.SC​MEI Added​--Previous Exposure Score 0​New Exposure Score 2​Score Change 2​
                                            Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added 
                                            Green Procurement Policy

                                            E.2.1

                                            Previous WeightNew Weight 5.0% Weight Change
                                            Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added 
                                            Supplier Environmental Programmes

                                            E.2.1.1

                                            -25.0%-
                                            Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added 
                                            Sustainable Agriculture Programmes

                                            E.2.1.3

                                            -25.0%-
                                            Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added 
                                            Deforestation Policy

                                            E.1.2.9

                                            -
                                            20.0%

                                            -
                                            Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added 
                                            Deforestation Programme

                                            E.1.2.10

                                            -25.0%-
                                            Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added 
                                            Land Use and Biodiversity - SC

                                            EV.43

                                            -Event Indicator-
                                            Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                            Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                            Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-

                                             

                                             Details

                                            Environmental and Social Impact of Products and Services​

                                            Companies in the Food Distribution subindustry are primarily engaged in the distribution of food products to other companies, not directly to the final consumer. Many of the food distributors have their own/private brands and are therefore responsible for the social issues related to the products they sell. The nutritional value of those products can have important consequences for societal health. Growing awareness of negative health impacts associated with the over-consumption of processed meat, saturated fats, sodium and sugars is leading an overall shift within consumer eating habits toward healthier products. As such, companies that do not emphasize healthier products in their overall offering face reputational and loss-of-market risks. In 2021, for example, Nestlé faced severe criticism after admitting that 60% of its portfolio is comprised of "unhealthy" products. In addition, ‘Nutrition & health, marketing and waste’, which fall under the environmental and social (E&S) Impact of Products and Services material issue, have been identified by the Sustainability Accounting Standards Board (SASB) as a key material issue for Food Retailers and Distributors. These factors have prompted us to add "E&S Impact of Products and Services" as a material issue for Food Distribution companies. 

                                             

                                             

                                            Land Use and Biodiversity - Supply Chain​

                                            An increasing number of food distributors are deriving a significant percentage of their revenue from own brand products, which entails increased scrutiny and material risk associated with their supply chain practices. Historically, the Agriculture Industry has been associated with deforestation issues, particularly in South America and Southeast Asia, exposing food distribution companies to biodiversity risks within their supply chain. Over the past couple of years, the issues of deforestation and biodiversity loss have received increased attention from governments and investors, as impacted communities and global civil society organizations continue to highlight the social and environmental costs of forest loss, and NGO reports, journalist investigations and media coverage of the issue have increased. As a result, food distributors, like food retailers, are coming under increasing scrutiny for the way they manage their supply chains, particularly in relation to commodities such as palm oil, soy or cattle, which are linked to large-scale deforestation and the destruction of biodiversity hotspots around the world. According to the Sustainability Accounting Standards Board, management of environmental and social impacts in the supply chain is identified as one of the key issues for Food Retailers and Distributors. These changes have led to heightened awareness and therefore increased demand for strong environmental sourcing criteria which includes considerations for biodiversity and deforestation risk management. Food distributors have come under pressure to cancel procurement contracts with suppliers due to high-profile deforestation incidents. Due to the emerging nature of this trend, we consider an exposure score of 2 - in line with the Food Retail subindustry - to be appropriate.  

                                             

                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                              Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--2​4​2​
                                              Business Ethics​MEI.4​Change in MEI Exposure Score​--3​4​1​
                                              Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event indicator-
                                              Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event indicator-
                                              Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event indicator-

                                              Details

                                              Data Privacy and Security​

                                              Companies in the Food Retail subindustry are primarily engaged in the retail of a general line of food, including establishments such as supermarkets and convenient stores. Over the past few years, especially through the COVID-19 pandemic, we have seen an increase in the revenue that is derived via online channels for companies in this subindustry, considerably increasing their exposure to Data Privacy and Security (DP&S) risks. This ongoing trend makes food retailers significantly exposed to sensitive data (especially personal consumer and payment information) and digitized systems. The consideration of these factors signals that the current exposure score (2) underestimates the risks related to DP&S for the Food Retail subindustry, especially considering that companies are still working to understand and mitigate risks surfacing from an increased use of online channels. Therefore, we have updated the exposure score to 4.



                                              Business Ethics

                                              In the past couple of years, we have seen a rise in M&A deals in response to declining sales and competition from technology companies entering the food sector. Additionally, consumer trends such as demand for natural, healthy, organic foods is fuelling the acquisition of small retailers with natural, local offerings. Increasing consolidation in the subindustry leads to increased risk of anti-competitive practices and other ethical misconduct. This hypothesis is confirmed by our events analysis, which shows that the incidence of related events has increased over the past couple of years, with almost 50% of subindustry constituents now involved in Business Ethics events. To fully capture these developments, we have increased the Food retail subindustry's exposure to Business Ethics from 3 to 4. 

                                               

                                              Community Relations​, Society - Human Rights, Community Relations

                                              Issues related to community relations or society human rights speak to the way in which a company conducts its business. Over the past few years, we have seen companies face increased scrutiny when it comes to the impacts of their business on communities and society at large. Therefore, to capture these risks, we have included these events under Business Ethics.

                                               

                                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                Data Privacy and Security​MEI.6​MEI Added​--0​4​4​
                                                Data Privacy and Security​MEI.6​Indicator Added
                                                Cybersecurity Programme

                                                S.3.1.3.3

                                                -40.0%-
                                                Data Privacy and Security​MEI.6​Indicator Added
                                                Data Privacy Programme

                                                S.3.1.3.1

                                                -40.0%-
                                                Data Privacy and Security​MEI.6​Indicator Added
                                                Data Privacy and Security

                                                EV.27

                                                -Event Indicator-
                                                Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                                Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-
                                                Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​Previous weight 45.00%New weight 40.0%Weight change -5.0%
                                                Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-

                                                Details

                                                Data Privacy and Security​

                                                 

                                                Footwear companies are primarily engaged in manufacturing and selling all types of footwear, including sport and leather shoes. Over the past few years, especially through the COVID-19 pandemic, we have seen an increase in the revenue that is derived via online channels for companies in this subindustry, considerably increasing their exposure to Data Privacy and Security (DP&S) risks. This ongoing trend makes retailers significantly exposed to sensitive data (especially personal consumer and payment information) and digitized systems. The consideration of these factors has prompted us to add this Material ESG Issue to the Footwear subindustry with an exposure score of 4, especially considering that companies are still working to understand and mitigate risks surfacing from an increased use of online channels.

                                                Social Supplier Certification​

                                                 

                                                Supplier Certifications are becoming increasingly relevant and tracking company performance on this matter is relevant to risk mitigation.

                                                 

                                                Supply Chain Management​

                                                We have reduced the weight to account for the addition of Supplier Certification.

                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                  Land Use and Biodiversity​MEI.14​Change in MEI Exposure Score​--3​4​1​
                                                  *Human Capital​MEI.13​MEI Added​--0​3​3​
                                                  #Business Ethics​MEI.4​MEI Removed​--2​0​-2​
                                                  Occupational Health and Safety​MEI.16​Indicator Weight Change​Health and Safety Management System​S.1.6.2.1​35.00%25.00%-10.0%
                                                  Occupational Health and Safety​MEI.16​Indicator Weight Change​Lost Time Incident Rate (LTIR) Trend​S.1.6.5​20.00%15.0%-5.0%
                                                  Occupational Health and Safety​MEI.16​Indicator Weight Change​Employee Fatality Rate​S.1.6.6​25.00%15.0%-10.0%
                                                  Occupational Health and Safety​MEI.16​Indicator Weight Change​Contractor Safety Programme​S.2.2.5​-12.5%-
                                                  Occupational Health and Safety​MEI.16​Indicator Weight Change​Contractor Fatalities​S.2.2.6​-12.5%-

                                                  Details

                                                  Human Capital 

                                                  Companies in the Forestry subindustry are involved in the maintenance and harvesting of forests and woodlands and engage in the manufacturing of timber and related wood products. In recent years, the forestry subindustry has experienced increased difficulties in recruiting qualified personnel, mainly due to the continuing rural exodus, although automation is not as strong in this subindustry as in others, as a lot of groundwork is still required, such as tree selection. This challenge is combined with increasing pressure on companies to develop greater sophistication, and provide higher wages for employees, amid ongoing margin pressure. Strikes have become more frequent, especially in Northern Europe where unions ask for better working conditions and higher compensation. Furthermore, Forestry companies are starting to recognize the issues associated with Human Capital as a material risk and therefore are increasingly identifying the risk of hiring employees with the skills they need in their reporting. This has prompted Sustainalytics to add Human Capital as a material issue for the Forestry subindustry. 

                                                   

                                                  *Human Capital - MEI Added

                                                  Following the addition of Human Capital as a material issue for the Forestry subindustry, we have added the following indicators: 

                                                  Indicator CodeIndicator NameNew Weight
                                                  S.1.1Freedom of Association Policy12.5%
                                                  S.1.1.1Working Hours Policy17.5%
                                                  S.1.3Diversity Programmes7.5%
                                                  S.1.4Collective Bargaining Agreements25.0%
                                                  S.1.5Employee Turnover Rate12.5%
                                                  S.1.5.2Human Capital Development25.0%

                                                   


                                                  #Business Ethics - MEI Removed

                                                  Following the removal of Business Ethics as a material issue for the Forestry subindustry, we have also removed the following indicators: 

                                                  Indicator CodeIndicator Name
                                                  G.3.1Political Involvement Policy
                                                  G.1.1Bribery & Corruption Policy
                                                  EV.2**Accounting and Taxation
                                                  EV.4**Anti-Competitive Practices
                                                  EV.6**Bribery and Corruption
                                                  EV.7**Business Ethics
                                                  EV.21**Intellectual Property
                                                  EV.23**Lobbying and Public Policy
                                                  EV.30**Sanctions
                                                  **Event Indicators

                                                   

                                                    1. Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                      Human Capital​MEI.13​Change in Exposure Score​--4​3​-1​
                                                      Carbon - Own OperationsMEI.8Beta Indicator RemovedCarbon Solutions OfferingEA.P. 9---

                                                    2.  

                                                    3. Details

                                                      Human Capital 

                                                      Companies in the Gas Utilities subindustry distribute natural and manufactured gas and operate infrastructure such as oil and gas distribution terminals, and gas processing plants removing gas liquids. Material risk exposure to Human Capital is driven primarily by two risk drivers:

                                                      1. Labour intensity: the amount of human capital a subindustry has at its disposal on average.

                                                      2. Labour skills, the level of average skill or training required by employees in a subindustry.

                                                      Our research suggests that labour- and skill-intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits, and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenues per employee and labour costs per employee. This has prompted us to decrease the exposure for the subindustry to better reflect the risk that Gas Utilities companies face in terms of hiring, development and retention of employees, in line with other Utilities subindustries. 



                                                       


                                                       

                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                      Land Use and Biodiversity​MEI.14​Change in MEI Exposure Score​--3​4​1​
                                                      Occupational Health and Safety​MEI.16​*Indicator Weight Change​Health and Safety Management System​S.1.6.2.1​Previous Weight 22.50%New Weight 25.0%Weight Change 2.5%
                                                      Occupational Health and Safety​MEI.16​*Indicator Weight Change​Health & Safety Certifications​S.1.6.4​7.50%20.0%12.5%
                                                      Occupational Health and Safety​MEI.16​*Indicator Weight Change​LTIR Trend​S.1.6.5​12.50%15.0%2.5%
                                                      Occupational Health and Safety​MEI.16​*Indicator Weight Change​Contractor Safety Programme​S.2.2.5​15.0%12.5%-2.5%
                                                      Occupational Health and Safety​MEI.16​*Indicator Weight Change​Contractor Fatalities​S.2.2.6​15.0%12.5%-2.5%
                                                      Occupational Health and Safety​MEI.16​Indicator Removed​Emergency Response Programme​E.1.3.1​12.50%0.0%-12.5%

                                                      Details

                                                      *Redistributed the weights from Emergency and HIV deactivation.


                                                       

                                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                        Human Capital​MEI.13​Change in MEI Exposure Score​--8​7​-1​

                                                        Details

                                                        Human Capital 

                                                         

                                                        Companies operating in the Health Care IT Services develop and provide comprehensive physician practice-management systems and software for hospitals, medical practices, and managed-care organizations. Such products and services require professionals who are skilled in specific areas such as Enterprise Resource Planning (ERP), automation, the Internet of Things (IoT), blockchain and cloud-based infrastructure. Material risk exposure to Human Capital is driven primarily by two risk drivers: 

                                                        1. Labour intensity: the amount of human capital a subindustry has at its disposal on average.

                                                        2. Labour skills: the level of average skill or training required by employees in a subindustry.

                                                        Our research suggests that labour- and skill-intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenues per employee and labour costs per employee. The findings of our research indicates that, while the Health Care IT Services subindustry is heavily reliant on labour, the skill level of its employees is globally lower than average employee skills. While there is a global shortage of professionals skilled in these areas and consequently the need for strong human capital development programmes, the risks faced by Health Care IT Services companies are deemed to be comparatively less than the risks faced by other Health Care subindustries. The latter experienced major labour shortages over the past three years, particularly in hospitals and care homes since the onset of the COVID-19 pandemic. Therefore, given this systematic shift, Sustainalytics is decreasing the exposure score for the subindustry to better reflect the risk that Health Care IT Services companies face in terms of hiring, development and retention of employees. For these reasons, a subindustry exposure score of 7 is deemed appropriate, bringing the Health Care IT Services subindustry on the same level of risk as the IT Consulting subindustry, which requires similar skills and faces similar human capital risks.  

                                                         

                                                         

                                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                          Data Privacy and Security​MEI.6​MEI Added​--0​4​4​
                                                          Data Privacy and Security​MEI.6​Indicator Added
                                                          Data Privacy & Security Policy

                                                          S.3.1.3

                                                          Previous Weight -New Weight 20.0%Weight Change -
                                                          Data Privacy and Security​MEI.6​Indicator Added
                                                          Cybersecurity Programme

                                                          S.3.1.3.3

                                                          -40.0%-
                                                          Data Privacy and Security​MEI.6​Indicator Added
                                                          Data Privacy Programme

                                                          S.3.1.3.1

                                                          -40.0%-
                                                          Data Privacy and Security​MEI.6​Indicator Added
                                                          Data Privacy and Security

                                                          EV.27

                                                          -Event Indicator-
                                                          Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                                          Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                          Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-

                                                          Details

                                                          Data Privacy and Security​

                                                          Home Appliances companies are primarily engaged in manufacturing and selling electric household appliances, including power tools, garden tools, kitchen appliances and laundry equipment. Over the past few years, especially through the COVID 19 pandemic, we have seen an increase in the revenue that is derived via online channels for companies in this subindustry. This has considerably increased their exposure to Data Privacy and Security (DP&S) risks. This ongoing trend makes Home Appliance companies significantly exposed to sensitive data (especially personal consumer and payment information) and digitized systems. The consideration of these factors has prompted us to add the DP&S Material ESG Issue (MEI) for the Home Appliances subindustry. 



                                                           


                                                           

                                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                            Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--2​4​2
                                                            Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​Previous Weight 45.00%New Weight 40.0%Weight Change -5.0%
                                                            Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-

                                                            Details

                                                            Data Privacy and Security​

                                                            Home Improvement Retail companies are primarily owners and operators of home and garden improvement retail stores, including stores offering building materials and supplies. Over the past few years, especially through the COVID-19 pandemic, we have seen an increase in the revenue that is derived via online channels for companies in this subindustry, considerably increasing their exposure to Data Privacy and Security (DP&S) risks. This ongoing trend makes retailers significantly exposed to sensitive data (especially personal consumer and payment information) and digitized systems. The consideration of these factors signals that the current exposure score (2) underestimates the risks related to DP&S for the Home Improvement Retail subindustry, especially considering that companies are still working to understand and mitigate risks surfacing from an increased use of online channels. Therefore, we have updated the exposure score to 4.



                                                            Social Supplier Certification​

                                                            Supplier Certifications are becoming increasingly relevant and tracking company performance on this matter is relevant to risk mitigation.

                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                              Resource Use​MEI.20​MEI Added​--0​3​3​
                                                              Resource Use

                                                              MEI.20​Indicator Added
                                                              Water Intensity

                                                              E.1.2.7

                                                              -New Weight 15.00%-
                                                              Resource Use
                                                              MEI.20​Indicator Added
                                                              *Water Risk Management

                                                              E.1.2.7.1

                                                              -10.0%-
                                                              Resource Use​MEI.20​Indicator Added
                                                              *Water Management Programmes

                                                              E.1.3.4

                                                              -25.0%-
                                                              Resource Use​MEI.20​Indicator Added
                                                              *Physical Climate Risk Management

                                                              E.1.6.2

                                                              -5.0%-
                                                              Resource Use​MEI.20​Indicator Added
                                                              *Recycled Material Use

                                                              E.2.1.7

                                                              -35.0%-
                                                              Resource Use​MEI.20​Indicator Added
                                                              *Water Intensity Trend

                                                              E.1.2.7.2

                                                              -10.0%-
                                                              Resource Use​MEI.20​Indicator Added
                                                              *Water Use

                                                              EV.33

                                                              -Event Indicator-

                                                              Details

                                                              Resource Use 

                                                              Companies in the Homebuilding subindustry are primarily responsible for the entire construction of new single-family housing and new multi-family residential housing units. This subindustry includes manufacturers of prefabricated houses and semi-fixed manufactured homes, contractors and operators that design and build residential houses and apartments. Key water-intensive processes on construction sites include wet trades (brickwork, screeding, concreting and plastering), general site activities (such as tool washing), groundworks (grouting and drilling), dust suppression (road and wheel washing), as well as concrete moist curing. All these activities can have an impact on hydrology in the vicinity of construction sites, with the potential consequences being water shortage or sedimentation.

                                                              Efficient water management is vital in both densely populated residential areas and regions where water is scarce or in short supply, particularly where numerous stakeholders compete for the same water resources. In parts of Australia, Asia and the West Coast of the United States, construction occurs in water-stressed regions. However, periods of heat and drought are also becoming increasingly common in Europe and North America in general. Companies that do not address this issue by integrating innovative water-efficiency solutions into projects may face hindered growth, higher production costs or conflicts with local communities. Industry players themselves classify water-related risks as material and many of them disclose detailed data on water withdrawal and discharge volumes as well as mitigative initiatives. To better reflect water-related risk, we have added Resource Use as a Material ESG Issue (MEI).



                                                               

                                                               *Indicators selected in line with Building Products and Construction Materials subindustries.

                                                               

                                                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                Land Use and Biodiversity - Supply Chain​MEI.14.SC​Change in MEI Exposure Score​--3​4​1​
                                                                Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-New Weight Event Indicator-
                                                                Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-

                                                                Details

                                                                Land Use and Biodiversity - Supply Chain​

                                                                Companies in the Household Products subindustry engage in manufacturing and selling (retail) consumer goods that are used in and around the home, such as over-the-counter drugs, and household cleaning and laundry products. Household Products companies face increasing scrutiny regarding land use and biodiversity issues in their supply chains, especially regarding the sourcing of palm oil and wood pulp which are respectively used as input for soaps and detergents and tissues and packaging.

                                                                Over the past couple of years, the issues of deforestation and biodiversity loss have received increased attention from governments and investors, as impacted communities and global civil society organizations continue to highlight the social and environmental costs of forest loss, and NGO reports, journalist investigations and media coverage of the issue have increased. The European Commission presented in November 2021 a proposed regulation on deforestation-free commodities and products in the European Union, which is likely to be approved. This will mean there will be more legal, financial and reputational risks in case of non-compliance, together with increased pressure on companies to enhance their management efforts.

                                                                Still, supply chain management in general and deforestation-related efforts within Household Products companies are still subpar. Sustainalytics' research suggests that the Household and Personal Products (HPP) industry, as a whole, has substantial gaps, with less than a third of the companies within our universe having adequate, strong or very strong related policies and programmes. In addition, environmental supplier certifications are also not common – suppliers of 60% of HPP companies have received none. Companies could face operational risks if they have to cancel contracts with suppliers found to be involved in illegal deforestation. These concerns are further amplified by the number of Land Use and Biodiversity - Supply Chain controversies, which have been on the rise in the past few years and are indicative of an increased trend of exposure to this issue for companies in the subindustry. These trends bring Household Products companies toward the medium side of the spectrum in terms of Land Use and Biodiversity – Supply Chain risks. We are therefore increasing the exposure score for the Subindustry to 4 to better reflect the risks that Household Products companies face.



                                                                 

                                                                 

                                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                  Human Capital​MEI.13​Change in MEI Exposure Score​--4​3​-1​

                                                                  Details

                                                                  Human Capital 

                                                                  Companies in the Independent Power Producers (IPP) subindustry operate power generation assets that sell electricity to distribution companies and large industrial consumers through power purchasing agreements or energy wholesale markets. Material risk exposure to Human Capital is driven primarily by labour intensity (i.e., the amount of human capital a subindustry disposes of on average; and labour skills (the level of average skill or training required by employees in a subindustry.

                                                                  Sustainalytics' research suggests that labour- and skill-intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenues per employee and labor costs per employee. This has prompted us to decrease the exposure for the subindustry to better reflect the risk that Independent Power Production companies face in terms of hiring, development and retention of employees, in line with other Utilities subindustries. 

                                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure Score New Exposure Score Score Change
                                                                  Emissions, Effluents and Waste​MEI.7​MEI Added​--0​3​3​
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                  Environmental Policy

                                                                  E.1.1

                                                                  Previous Weight -New Weight 7.5%Weight Change -
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                  Environmental Management System

                                                                  E.1.2

                                                                  -7.5%-
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                  Effluent Management

                                                                  E.1.2.6.3

                                                                  -20.0%-
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                  EMS Certification

                                                                  E.1.3

                                                                  -
                                                                  7.5%

                                                                  -
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                  Emergency Response Programme

                                                                  E.1.3.1

                                                                  -
                                                                  12.5%

                                                                  -
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                  Hazardous Waste Management

                                                                  E.1.3.2

                                                                  -
                                                                  20.0%

                                                                  -
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                  Non-GHG Air Emissions Programmes

                                                                  E.1.3.3

                                                                  -20.0%-
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                  Physical Climate Risk Management

                                                                  E.1.6.2

                                                                  -5.0%-
                                                                  Emissions, Effluents and Waste​MEI.7​Indicator AddedEmissions, Effluents and Waste​
                                                                  EV.14

                                                                  -Event Indicator-
                                                                  Carbon - Own Operations​MEI.8​Change in MEI Exposure Score​--Previous Exposure Score 6New Exposure Score 8Score Change 2
                                                                  Carbon - Products and Services​MEI.8.PS​Indicator Added​Scope of GHG Reporting​E.1.6​Previous Weight -New Weight 20.0%Weight Change -
                                                                  Carbon - Products and Services​MEI.8.PS​Indicator Weight Change​Sustainable Products & Services​E.3.1.1​100.00%80.0%-20.0%

                                                                  Details

                                                                  Emissions, Effluents and Waste​

                                                                  The Industrial Gases subindustry includes companies that produce atmospheric gases, process and specialty gases, and gas equipment. Industrial Gases companies produce products - such as such as refrigerant gases and fuel gases - that could represent an environmental risk if released. In addition, some gases could present a flammability or explosion risk. Although in a lower scale than the overall Chemicals industry, industrial gas production could also result in VOC, NOx and SOx emissions, as well as hazardous waste production. In light of those issues, companies in the subindustry are exposed to tightening regulatory standards with regards to air emissions, waste and effluents disposal. In addition, with the Sustainable Finance Disclosure Regulation (SFDR), investment funds are prompted to divest from high-pollutant companies in order to comply with the SFDR requirements. Failure to appropriately treat and release waste and effluent could trigger environmental fines, temporary facility closures, protests from local communities, and reputational damages. This has prompted Sustainalytics to add Emissions, Effluents, and Waste as a material issue for the Industrial Gas subindustry. 



                                                                   

                                                                   

                                                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                    Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--6​7​1​

                                                                    Details

                                                                    Data Privacy and Security​

                                                                    Companies in the Insurance Brokers subindustry are primarily engaged in investigating, appraising, processing, and settling insurance claims. Subindustry constituents face increasing risk related to Data Privacy and Security issues due to the continuously growing volume of highly sensitive personal information they collect. As Insurance Brokers act as intermediaries between underwriters and insurance policyholders, they store and manage substantial amounts of sensitive data, such as personal identification numbers and personal health information. Moreover, due to the essential nature of their business to society, Insurance Brokers have been identified as ‘Critical Infrastructure’ assets. Additionally, companies in this subindustry are exposed to tightening regulatory standards with regards to Data Privacy and Security (e.g., EU-GDPR) and increased cyber security risks due to geopolitical tensions. The consideration of these factors indicates that the current exposure score (6) underestimates the risks related to Data Privacy and Security for Insurance Brokers companies, prompting us to increase it by one point, to a new exposure score of 7.



                                                                     


                                                                     

                                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                      Human Capital​MEI.13​Change in MEI Exposure Score​--5​3​-2​
                                                                      Resource Use​MEI.20​Change in MEI Exposure Score​--2​5​3​
                                                                      Community Relations​MEI.5​Indicator Added​Human Rights Programme​S.4.2.1.2​Previous Weight -New Weight 15.0%Weight Change -
                                                                      Community Relations​MEI.5​Indicator Weight Change​Human Rights Policy​S.4.2.1​20.00%10.0%-10.0%
                                                                      Community Relations​MEI.5​Indicator Weight Change​Community Development Programmes​S.4.2.11​30.00%25.00%-5.0%
                                                                      Emissions, Effluents and Waste​MEI.7​Indicator Added​Physical Climate Risk Management​E.1.6.2​-10.0%-
                                                                      Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Emergency Response Programme​E.1.3.1​17.50%12.5%-5.0%
                                                                      Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Effluent Management​E.1.2.6.3​25.00%20.0%-5.0%

                                                                      Details

                                                                      Human Rights Programmes 

                                                                      Many fossil fuel producers – including companies involved in exploration and production activities, along with coal companies – operate in locations with political and/or social instability. Over the past few years, energy companies have faced increasingly material levels of scrutiny for their direct or indirect involvement in human rights violations. We saw this when several energy producers announced their withdrawal from Myanmar in early 2022 over human rights abuses and deteriorating rule of law in the country. Similarly, after Russia’s 2022 invasion of Ukraine, most international energy companies announced plans to exit from their interests in the country- amid investor pressure to not indirectly financially support Russia’s war efforts. The investment community’s ability to assess how a company is mitigating risks and impacts posed by the occurrence of human rights violations across its supply chain is of increasing importance. The Human Rights Programmes indicator weight has been activated and set to 15% to support investors in understanding how the energy industry is responding to human rights issues and to reflect their significance. 

                                                                       

                                                                      Physical Climate Risk Management​

                                                                      Climate change has increased both the severity and frequency of extreme weather events, an occurrence that has become widely disruptive to energy companies, particularly Integrated Oil & Gas companies that operate a vast network of oil and gas infrastructure. Underwater pipelines, coastal storage facilities, refineries as well as offshore rigs have become particularly exposed to being damaged by extreme weather events. The impact of such disruption can be highly material for companies as witnessed by the sizable oil spill that occurred in the Gulf of Mexico following Hurricane Ida in 2021 or by the vast amount of air pollutants that were released near communities surrounding Texas following Hurricane Harvey in 2017. As such, the Physical Climate Risk Management indicator weight has been set at 10% to reflect the significance of the issue. 

                                                                       

                                                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                        Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​37.5%32.5%-5.0%
                                                                        Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-5.0%-
                                                                        Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                                                                        Details

                                                                        Employee Training 

                                                                        This indicator assesses the average number of training days a company provides its workforce in a given fiscal year, to build specific knowledge and upgrade skills so that its employees can improve their performance and excel in their roles. The indicator is being activated as part of MEI. 13 "Human Capital" to address the increasing need of companies to have highly skilled employees that require continuous up-skilling.


                                                                        Employees - Human Rights​

                                                                         

                                                                        This indicator assesses a company's commitment to a threshold of maximum hours employees can work in a day or a week, and it is aligned with the International Labour Organization's (ILO) related conventions. The indicator is being added as part of MEI. 13 "Human Capital” to address the increasingly long working hours observed in the software and services industry. Exceeding maximum working hours can have direct impacts on companies through fines and penalties, as well as high employee turnover rates. Assessing a company’s policy on maximum working hours provides an indication of its preparedness to mitigate related risks, and of its commitment to employee wellbeing.

                                                                         

                                                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                          ESG Integration - Financials​MEI.17​Change in Exposure Score​--5​6​1​
                                                                          Resilience​MEI.19​Change in Exposure Score​--6​5​-1​
                                                                          Data Privacy and Security​MEI.6​Change in Exposure Score​--5​6​1​

                                                                           

                                                                          Details

                                                                          ESG Integration - Financials​

                                                                          Companies in the Investment Banking and Brokerage subindustry perform a wide range of functions in the capital markets, including assisting with the capital-raising and allocation process, and providing market-making and advisory services for corporations, financial institutions, governments, and high net-worth individuals. Since Investment Banks have a significant impact on capital markets through their products and services, including corporate finance, public offering (IPOs and SPOs) underwriting and consultancy services and investment consultancy and advisory, risks related to the integration of climate change, social practices and governance principles are relatively higher and should be more aligned with other financial subindustries. In addition, around 60% of companies in the subindustry have been involved in at least one controversy related to ESG-Integrated financials, the second-highest frequency across subindustries in the financial industry. The consideration of those factors indicates that the current exposure score (5) underestimates the risks related to ESG for Investment Banking and Brokerage companies, prompting us to increase it by one point, to a new exposure score of 6.

                                                                           

                                                                          Resilience​

                                                                          In response to the vulnerability of Investment Banks to deficiencies in risk management revealed by the 2008 financial crisis, governments and regulatory bodies worldwide have enhanced global capital and liquidity standards under Basel III reforms. In this scenario, Investment Banks and Brokers are required to meet several control requirements, such as the ones established by the American Dodd-Frank Act and the European Market Infrastructure Regulation. Looking at the distribution of Resilience risks across other subindustries in the Financials industry,  Sustainalytics believes the Investment Banking and Brokerage subindustry's exposure should be aligned with companies in the Diversified Banks and Asset Management and Custody Services subindustries, given the similarities in their exposure to resilience risks. The consideration of this factor indicates that the current exposure score (6) overestimates the risks related to Resilience to Investment Banking and Brokerage companies, prompting us to decrease it by one point, to a new exposure score of 5.

                                                                           

                                                                          Data Privacy and Security​

                                                                          Subindustry constituents face increasing risk to Data Privacy and Security issues due to the continuously growing volume of highly sensitive personal information that they collect. The exposure to sensitive data, business-to-consumer (B2C) operations and highly digitized systems indicate that Investment Banking and Brokerage companies are vulnerable to considerable data privacy and security risks. Moreover, due to the essential nature of their business to society, they have been identified as ‘Critical Infrastructure’ assets, increasing the risk of cyberattacks.

                                                                          Companies in this subindustry are also exposed to tightening regulatory standards with regards to data privacy and security (e.g., EU-GDPR) and increased cyber security risks due to geopolitical tensions. The consideration of these factors indicates that the current exposure score (5) underestimates the risks related to data privacy and security for Investment Banking and Brokerage companies, prompting us to increase it by one point, to a new exposure score of 6. The new score better aligns this subindustry with other financial subindustries.

                                                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                            Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--8​7​-1​
                                                                            Resource Use​MEI.20​MEI Added​--0​2​2​
                                                                            Carbon - Own Operations​MEI.8​MEI Added​--0​2​2​
                                                                            Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​Previous Weight 37.50%New Weight 32.5%Weight Change -5.0%
                                                                            Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-5.0%-
                                                                            Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                                                                            Details

                                                                            Resource Use 

                                                                            The IT Consulting subindustry constituents are providers of information technology and systems integration services, including information technology consulting, information management services and providers of help desk and other support services. Sustainalytics' research indicates that subindustry constituents generate and store large amounts of information in data centres, a trend that has been growing in the past few years, leading to increased resource use risk.

                                                                             

                                                                            Data centres can require billions of litres of water each year, both directly, for cooling purposes, and indirectly, through electricity generation, increasing exposure to water-related operational risk. By 2030, the world is projected to face a 40% global water deficit, which could create more competition for and stringent regulations on water use. Climate change and the ensuing issue of water stress elevate companies' exposure to water risks, including the threats of volatile water prices and sudden rate increases for water. Companies with data centres in regions prone to droughts, aridification, water shortages and other extreme weather events may face business continuity issues, reduced secure access to water resources, community protests and adverse publicity; particularly if numerous stakeholders compete for the same water resources within the same region.

                                                                             

                                                                            Additionally, as climate change progresses and water stress worsens, new regulations may restrict water use, which could drive companies to implement contingency plans involving alternate water sources. The transition to a water-secure future could cause a shift in market preferences and introduce more stringent reporting, forcing companies to increase transparency around their water use. At present, less than a third of data centre operators in the US measure water consumption. As a result, we have added the Resource Use MEI with an exposure score of 2 to appropriately reflect water-related risk in this subindustry. 



                                                                            Carbon - Own Operations 

                                                                            Data centres are becoming an integral part of the data processing industry's growth and innovation strategy. The tremendous volume of data transmitted to process transactions depend on integrated data centre infrastructure. Data centres have traditionally been energy intensive, potentially consuming 10 or even 50 times the energy of a typical commercial office building, according to the US Department of Energy. Along with the energy intensity of these facilities, data centre development costs may run into the billions, along with recurring maintenance costs. As a result, companies need to develop strategies to manage the operational burden of data centre infrastructure, while capturing the opportunities it provides. Therefore, we have added Carbon - Own Operations as a material issue for the IT Consulting subindustry to better reflect carbon risk exposure and to remain aligned with other subindustries in the TMT sector that have activated the Resource Use MEI for data centres.


                                                                             

                                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                              Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--6​8​2​
                                                                              ESG Integration - Financials​MEI.17​Indicator Weight Change​Responsible Investment Policy​G.1.3.2​Previous Weight 10.00%New Weight 15.0%Weight Change 5.0%
                                                                              ESG Integration - Financials​MEI.17​Indicator Added​Underwriting Standards​G.1.3.9​-5.0%-
                                                                              ESG Integration - Financials​MEI.17​Indicator Weight Change​Physical Climate Risk Management​E.1.6.2​15.00%10.0%-5.0%
                                                                              ESG Integration - Financials​MEI.17​Indicator Weight Change​Responsible Asset Management​E.3.1.11​30.00%25.0%-5.0%

                                                                              Details

                                                                              Data Privacy and Security​

                                                                              Companies in the Life and Health Insurance subindustry are primarily focused on life, disability, indemnity and supplemental health insurance. Subindustry constituents face increasing risk to data privacy and security issues due to the continuously growing volume of highly sensitive personal information that they collect, especially personal identification numbers and health information. Moreover, due to the essential nature of their business to society, life and health insurers have been identified as ‘Critical Infrastructure’ assets. Companies in this subindustry are also exposed to tightening regulatory standards with regards data privacy and security (e.g., EU-GDPR) and increased cyber security risks due to geopolitical tensions. As companies in the subindustry focus their businesses on life and health issues, which are linked to the most sensitive type of personal data, we believe the subindustry should have a higher exposure score among the other insurance underwriters. The consideration of these factors indicates that the current exposure score (6) underestimates the risks related to data privacy and security for Life and Health Insurance companies, prompting us to increase it by two points, to a new exposure score of 8.



                                                                               

                                                                               

                                                                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--2​4​2​
                                                                                Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​---
                                                                                Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​---
                                                                                Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​---
                                                                                Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​Previous Weight 45.00%New Weight 40.0%Weight Change -5.0%
                                                                                Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-

                                                                                Details

                                                                                 

                                                                                Data Privacy and Security​

                                                                                Companies in the Luxury Apparel subindustry are primarily engaged in manufacturing and selling apparel, accessories, and luxury goods, including designer handbags, wallets, luggage, jewelry, and watches. Over the past few years, especially through the COVID-19 pandemic, we have seen an increase in the revenue that is derived via online channels, considerably increasing their exposure to data privacy and security risks. This ongoing trend makes retailers significantly exposed to sensitive data (especially personal consumer and payment information) and digitized systems. The consideration of these factors signals that the current exposure score (2) underestimates the risks related to data privacy and security for the Luxury Apparel SI, especially considering that companies are still working to understand and mitigate risks surfacing from an increased use of online channels. Therefore, we have updated the exposure score to 4. 

                                                                                 

                                                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Removed​Noise Management​S.4.2.15​20.0%0.0%-20.0%
                                                                                  Land Use and Biodiversity​MEI.14​Indicator Added​Physical Climate Risk Management​E.1.6.2​-20.0%-
                                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​EMS Certification​E.1.3​10.00%
                                                                                  17.5%

                                                                                  7.5%

                                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Environmental Management System​E.1.2​
                                                                                  10.00%

                                                                                  15.0%

                                                                                  5.0%

                                                                                  Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Non-GHG Air Emissions Programmes​E.1.3.3​
                                                                                  12.50%

                                                                                  20.0%

                                                                                  7.5%

                                                                                  Land Use and Biodiversity​MEI.14​Indicator Weight Change​Environmental Management System​E.1.2​
                                                                                  30.00%

                                                                                  25.0%

                                                                                  -5.0%

                                                                                  Land Use and Biodiversity​MEI.14​Indicator Weight Change​Biodiversity Programmes​E.1.2.1​
                                                                                  45.00%

                                                                                  30.0%

                                                                                  -15.0%

                                                                                  Details

                                                                                  Physical Climate Risk Management​

                                                                                  Given the critical role of ports in the global trading system, especially in the context of COVID-19 pandemic-related port constraints and terminal inefficiencies, and their potential exposure to climate-related damage, disruptions and delays, enhancing their climate resilience is a matter of strategic socio-economic importance for the global economy and society as a whole. Ports are inherently vulnerable to the effects of climate change. Rising sea levels, storm surges, hurricanes, and coastal erosion are just a few of the climate-related threats that have the potential to produce impacts on port infrastructure and operations.

                                                                                   

                                                                                   

                                                                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                    Bribery and Corruption​MEI.3​Change in Exposure Score​--6​4​-2​

                                                                                    Details

                                                                                    Bribery and Corruption​

                                                                                    Medical Device companies develop, manufacture, and market medical and surgical equipment interacting directly with doctors or other health care practitioners, hospitals and/or clinics. This integration exposes Medical Device companies to bribery and corruption risks, through direct payments, free equipment, meals, entertainment, consultancy fees or any other transfer of value. Despite the existing risk of being involved in such practices, in the past two years, bribery and corruption incidents have been declining within the subindustry, with the number of incidents recorded (among constituents within Sustainalytics' Medical Devices subindustry) in 2021 being 22% lower than in 2019. The downward trend in incidents could be explained by an increased number of companies adopting anti-bribery policies and extensive company initiatives to minimize bribery and corruption incidents. Furthermore, of 589 companies within the subindustry, 85% have no relevant controversies linked to bribery and corruption, and only one company has a Category Level 3 controversy (the highest controversy level for this event within the subindustry) – highlighting a trend of declining subindustry exposure to this issue. While the risk exposure to this issue is still considered medium, the recent trends observed move it toward the beginning of the scale, at 4 (close to low exposure).



                                                                                     

                                                                                     

                                                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                      Business Ethics​MEI.4​Change in Exposure Score​--3​5​2​

                                                                                      Details

                                                                                      Business Ethics 

                                                                                      Medical Distribution companies are primarily engaged in the distribution and supply of medical instruments and supplies, ophthalmic goods, and other health-related items to the medical and healthcare industry. Other than distributing medicines, companies operating in this subindustry also deliver financial and management services to healthcare providers, which exposes them to risks related to healthcare fraud. In the past couple of years, increased vertical consolidation has been observed in the subindustry (such as AmerisourceBergen’s acquisition of Walgreen’s Alliance Healthcare in June 2021), leading to increased risk of anti-competitive practices. Furthermore, a US Department of Justice report released in February 2022 revealed that in FY2021, 90% of the settlements in US fraud cases were from the healthcare industry, reflecting the upward trend of risks for companies. These trends bring Medical Distribution companies toward the medium side of the spectrum in terms of Business Ethics risks. We are therefore increasing the exposure score for the subindustry to better reflect the risks that companies face in terms of heavy fines, lawsuits, and potential operational disruptions.

                                                                                       

                                                                                       

                                                                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                        Human Capital​MEI.13​Change in MEI Exposure Score​--5​6​1​
                                                                                        Emissions, Effluents and Waste​MEI.7​MEI Added​--0​2​2​
                                                                                        Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                        Environmental Policy

                                                                                        E.1.1

                                                                                        Previous Weight

                                                                                        -

                                                                                        New Weight

                                                                                        22.5%

                                                                                        Weight Change 

                                                                                        -

                                                                                        Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                        Environmental Management System

                                                                                        E.1.2

                                                                                        -25.0%-
                                                                                        Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                        EMS Certification

                                                                                        E.1.3

                                                                                        -17.5%-
                                                                                        Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                        Hazardous Waste Management

                                                                                        E.1.3.2
                                                                                        -35.0%-
                                                                                        Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                        Emissions, Effluents and Waste

                                                                                        EV.14

                                                                                        -Event Indicator-
                                                                                        Product Governance​MEI.18​Indicator Removed​Value-Based Health Care Programme​S.3.1.15​

                                                                                        Previous Weight

                                                                                        27.50%

                                                                                        New Weight

                                                                                        0.0%

                                                                                        Weight Change -27.5%
                                                                                        Product Governance​MEI.18​Indicator Weight Change​Product and Service Safety Programme​S.3.1.9.1​45.00%60.0%15.0%
                                                                                        Product Governance​MEI.18​Indicator Weight Change​QMS Certifications​S.3.2.1​27.50%40.0%12.5%

                                                                                        Details

                                                                                        Emissions, Effluents and Waste​

                                                                                         

                                                                                        Companies in the Medical Facilities subindustry provide medical services through the ownership and operation of hospitals and long-term care facilities. Medical Facilities generate a high amount of waste, of which a considerable part is considered hazardous material, which can be infectious, toxic or radioactive. The waste could be in the form of syringes, needles, solvents and reagents, blood, waste contaminated with blood, organs, drugs and radioactive waste from X-rays. Hospital wastewater has also been found to be a contributor to antimicrobial resistance, with approximately 10% of medicinal products in urban effluents within the EU coming from hospitals. As such, those companies that are not able to implement enhanced waste-segregation strategies, recycling, and reuse can be exposed to heavy fines, legal fees, lawsuits and reputational damage. In light of those issues, companies in the subindustry are exposed to tightening regulatory standards with regards to waste disposal. In November 2020, for example, the EU Circular Economy framework settled on five principles for sustainable healthcare waste management in Europe, also providing key actions for healthcare organizations such as zero waste and toxic-free, a phase down of incineration, and protecting workers. An important factor for the complexity of healthcare waste disposal are the higher disposal fees, generating a significant cost for companies. As a result of these trends and developments, Sustainalytics has added Emissions, Effluents, and Waste as a material issue for the Medical Facilities subindustry. 


                                                                                         


                                                                                         

                                                                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                          Human Capital​MEI.13​Change in MEI Exposure Score​--4​5​1​

                                                                                          Details

                                                                                          Human Capital​

                                                                                          Medical Services is a diverse subindustry whose constituents can vary by business model. However, almost of all of these rely on trained medical personnel or highly specialized skills – in particular when providing medical care and treatment services, or advanced diagnostics services. Similar to Medical Facilities, the Medical Services subindustry is equally experiencing record staff shortages that have only been exacerbated by the COVID-19 pandemic. Medical Services such as dialysis and diagnostics require highly skilled professionals as they involve in-person consultations and diagnoses.

                                                                                          Per the Association of American Medical Colleges, the US is projected to face a shortage of between 37,800 and 124,000 physicians within the next 12 years, thus highlighting the need for companies to have strong human capital development programmes. Additionally, incidents related to labour relations have also been on the rise. In 2021, the number of employee-related incidents increased by 92% as compared to 2020, with the majority being related to lawsuits regarding wrongful dismissals, discrimination, excessive hours and staffing shortages. Subindustry companies may face understaffing and may be pressured to increase their labor spending to be able to compete for skilled talent, as well as to invest in employee development and retention. We are therefore increasing the exposure score for the subindustry to better reflect the risks that Medical Services companies face in terms of hiring, development and retention of employees.

                                                                                           


                                                                                           

                                                                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                            Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​---

                                                                                            Details

                                                                                            Employees - Human Rights​

                                                                                            Medical Supplies companies are involved in manufacturing a range of products such as gloves, personal protective equipment, syringes, and optical lenses. A significant number of companies in this subindustry have manufacturing operations in Asian countries such as Malaysia and Thailand, where the cost of labour is substantially lower, but incidents of labour and human rights violations are common. Since 2019, glove manufacturing companies with operations in Malaysia have been under increased regulatory scrutiny over alleged labour violations. Within Sustainalytics coverage, five companies with operations in Malaysia have high-level controversies (two companies are on Category Level 4, one on Category Level 3, and two on Category Level 2) and have been targeted over potential human rights violations, thereby leading to significant legal, operational, reputational, and financial risks. Sustainalytics believes the inclusion of this event indicator under the Human Capital Material ESG Issue is relevant in order to adequately capture the risk exposure to companies.

                                                                                             


                                                                                             

                                                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                              Emissions, Effluents and Waste​MEI.7​MEI Added​--0​3​3​
                                                                                              Emissions, Effluents and Waste​ MEI.7​Indicator Added
                                                                                              Environmental Policy

                                                                                              E.1.1

                                                                                              Previous Weight -New Weight 10.0%Weight Change -
                                                                                              Emissions, Effluents and Waste​ MEI.7​Indicator Added
                                                                                              Environmental Management System

                                                                                              E.1.2

                                                                                              -10.0%-
                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                              Effluent Management

                                                                                              E.1.2.6.3

                                                                                              -25.0%-
                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                              EMS Certification

                                                                                              E.1.3

                                                                                              -5.0%-
                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                              Hazardous Waste Management

                                                                                              E.1.3.2

                                                                                              -25.0%-
                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                              Non-GHG Air Emissions Programmes

                                                                                              E.1.3.3

                                                                                              -17.5%-
                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                              Recycled Material Use

                                                                                              E.2.1.7

                                                                                              -7.5%-
                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Added
                                                                                              Emissions, Effluents and Waste

                                                                                              EV.14

                                                                                              -Event Indicator-

                                                                                              Details

                                                                                              Emissions, Effluents and Waste​

                                                                                              Companies included in the Metal and Glass Packaging subindustry manufacture and market plastic, metal, and glass-packaging products, including glass bottles, aluminum cans, and plastic foam and containers. Depending on the type of packaging (glass, plastic, or aluminum), during the manufacturing process, high amounts of waste and effluents are generated, and toxic air released, which if not disposed of and managed properly, may contaminate the surrounding environment and ecosystem. More specifically, while melting the raw material for manufacturing glass, a high amount of air emissions, including sulfur oxides (SO2) and nitrogen oxides (NO2), are released. During the vaporization and recrystallization phase production, fine particles that can contain heavy metals such as arsenic and lead are released.

                                                                                              The production of cans or aluminum packaging emit pollutants such as sulfur dioxide (SOx), dust, polycyclic aromatic hydrocarbons and wastewater. The manufacturing of plastic packaging emits toxic substances into the air such as nitrous oxides, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride. Additionally, waste and effluents produced during the plastic packaging manufacturing process may contain plastic "nurdles’’, which if not disposed of properly may contaminate waterways and oceans. Due to those factors, companies in the subindustry have been exposed in the past few years to tightening regulatory standards with regards to air emissions, waste and effluents disposal. With the Sustainable Finance Disclosure Regulation (SFDR), investment funds are prompted to divest from high-pollutant companies in order to comply with SFDR requirements. Failure to appropriately treat and release waste and effluent have triggered an increasing number of environmental fines, temporary facility closures, protests from local communities, and reputational damages. These developments have prompted Sustainalytics to add Emissions, Effluents, and Waste as a material issue for the Metal and Glass Packaging subindustry. 


                                                                                               

                                                                                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                Product Governance​MEI.18​MEI Removed​--5​0​-5​
                                                                                                Business Ethics​MEI.4​Indicator Weight Change​Bribery & Corruption Programmes​G.1.1.1​Previous Weight 15.00%New Weight 25.00%Weight Change 10.00%
                                                                                                Business Ethics​MEI.4​Indicator Weight Change​Whistleblower Programmes​G.1.2​20.00%25.00%5.0%
                                                                                                Business Ethics​MEI.4​Indicator Removed​Money Laundering Policy​G.1.4.1​15.00%0.0%-15.0%

                                                                                                 

                                                                                                Details

                                                                                                Product Governance - MEI Removed

                                                                                                The main objective of companies or trusts in the Mortgage REITs subindustry is to service, originate, purchase, and/or securitize residential and/or commercial mortgage loans or invest in mortgage-backed securities and other mortgage-related assets. Mortgage REITs may also indirectly finance real estate operations and a few subindustry constituents also actively participate in real estate project financing, though direct lending is limited in the market. The main business model of Mortgage REITs involves earning a profit from their net interest margin, the spread between interest income on mortgage assets and funding costs. As such, Mortgage REITs do not offer products or services to any customer base and therefore we have removed the MEI Product Governance for this subindustry. There is no systematic pattern of involvement in Product Governance violations among the subindustry constituents and the removal of this material issue would better reflect the actual risk for this subindustry. 

                                                                                                Alongside the removal of Product Governance as a material issue, we have also deactivated (removed) the following indicators: Sustainable Products & Services (E.3.1.1); Responsible Product Offering (G.1.3.8); Marketing Practices (EV.24); and Quality and Safety (EV.28).


                                                                                                 

                                                                                                 

                                                                                                 

                                                                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                                                  Human Capital​MEI.13​Indicator Added​Working Hours Policy​S.1.1.1​-5.0%-
                                                                                                  Human Capital​MEI.13​Indicator Weight Change​Employee Turnover Rate​S.1.5​12.50%10.0%-2.5%
                                                                                                  Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​35.00%30.0%-5.0%
                                                                                                  Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-2.5%-
                                                                                                  Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-
                                                                                                  Data Privacy and SecurityMEI.6Beta Indicator AddedData MonetizationEA.P. 12---


                                                                                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                    Business Ethics​MEI.4​Change in MEI Exposure Score​--4​5​1​
                                                                                                    ESG Integration - Financials​MEI.17​Change in MEI Exposure Score​--4​6​2​
                                                                                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                    Human Capital​MEI.13​Change in MEI Exposure Score​--4​3​-1​
                                                                                                    Carbon - Own OperationsMEI.8Beta Indicator RemovedCarbon Solutions OfferingEA.P 9---

                                                                                                     

                                                                                                    Details

                                                                                                    Human Capital​

                                                                                                     

                                                                                                    Companies in the Multi-Utilities subindustry operate infrastructure such as power generation, and electrical and gas transmission and distribution for residential, institutional and commercial customers. Material risk exposure to Human Capital is driven primarily by two risk factors:

                                                                                                    1. Labour intensity: the amount of human capital a subindustry has at its disposal on average.

                                                                                                    2. Labour skills: the level of average skill or training required by employees in a subindustry.

                                                                                                    Sustainalytics' research suggests that labour- and skill-intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenues per employee and labor costs per employee. This has prompted us to decrease the exposure for the subindustry to better reflect the risk that Multi-Utilities companies face in terms of hiring, development and retention of employees, in line with other Utilities subindustries. 



                                                                                                     


                                                                                                     

                                                                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                      Resource Use​MEI.20​MEI Added​--0​3​3​
                                                                                                      Resource Use​MEI.20​Indicator Added
                                                                                                      Water Intensity

                                                                                                      E.1.2.7

                                                                                                      Previous WeightNew Weight 15.0%Weight Change -
                                                                                                      Resource Use​MEI.20​Indicator Added
                                                                                                      Water Risk Management

                                                                                                      E.1.2.7.1

                                                                                                      -10.0%-
                                                                                                      Resource Use​MEI.20​Indicator Added
                                                                                                      Water Management Programmes

                                                                                                      E.1.3.4

                                                                                                      -25.0%-
                                                                                                      Resource Use​MEI.20​Indicator Added
                                                                                                      Physical Climate Risk Management

                                                                                                      E.1.6.2

                                                                                                      -5.0%-
                                                                                                      Resource Use​MEI.20​Indicator Added
                                                                                                      Recycled Material Use

                                                                                                      E.2.1.7

                                                                                                      -35.0%-
                                                                                                      Resource Use​MEI.20​Indicator Added
                                                                                                      Water Intensity Trend

                                                                                                      E.1.2.7.2

                                                                                                      -10.0%-
                                                                                                      Resource Use​MEI.20​Indicator Added
                                                                                                      Water Use

                                                                                                      EV.33

                                                                                                      -Event Indicator-

                                                                                                      Details

                                                                                                      Resource Use​

                                                                                                      Companies in the Non-Residential Construction subindustry are primarily engaged in construction and engineering services offered for non-residential buildings. This includes civil engineering companies and large-scale contractors. Key water-intensive processes on construction sites include wet trades (brickwork, screeding, concreting and plastering), general site activities (such as tool washing), groundwork (grouting and drilling), dust suppression (road and wheel washing), as well as concrete curing. All these activities can have an impact on hydrology in the vicinity of construction sites, with the potential consequences being water shortage or sedimentation. Efficient water management is vital in both densely populated residential areas and regions where water is scarce or in short supply, particularly where numerous stakeholders compete for the same water resources. In parts of Australia, Asia and the West Coast of the United States, construction occurs in water-stressed regions. However, periods of heat and drought are also becoming increasingly common in Europe and North America in general. Companies that do not address this issue by integrating innovative water-efficiency solutions into projects may face hindered growth, higher production costs or conflicts with local communities. Industry players themselves classify water-related risks as material and many of them disclose detailed data on water withdrawal and discharge volumes as well as mitigative initiatives. To better reflect water-related risk, we have added the Material ESG Issue (MEI) "Resource Use". 

                                                                                                       


                                                                                                       

                                                                                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                        Human Capital​MEI.13​Change in MEI Exposure Score​--6​3​-3​

                                                                                                        Details

                                                                                                        Human Capital​

                                                                                                        Companies in the Oil and Gas Drilling subindustry include drilling contractors or owners of drilling rigs that contract their services as well as providers of installation and maintenance services for existing oilfields and oil rigs. The technically challenging and often remote environments that many Oil and Gas drilling companies operate in require a highly specialized and skilled workforce, resulting in exposure to Human Capital issues. Material risk exposure to Human Capital is driven primarily by two risk factors:

                                                                                                        1. Labour intensity: the amount of human capital a subindustry has at its disposal on average.

                                                                                                        2. Labour skills: the level of average skill or training required by employees in a subindustry.

                                                                                                        Sustainalytics' research suggests that labour- and skill-intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenues per employee and labor costs per employee. The findings of our research indicates that, while the Oil and Gas Drilling subindustry requires highly skilled employees, it is one of the least labour-intensive subindustries. This has prompted us to decrease the exposure for the subindustry to better reflect the risk that Oil and Gas Drilling companies face in terms of hiring, development and retention of employees. For these reasons, we consider a subindustry exposure score of 3 is appropriate, aligning the subindustry with the same level of risk as other Oil and Gas subindustries. 

                                                                                                         

                                                                                                          Material ESG Issue (MEI)MEI CodeUpdateIndicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                          Human CapitalMEI.13Change in MEI Exposure Score--85-3

                                                                                                          Details

                                                                                                          Human Capital

                                                                                                          Companies from the Oil and Gas Equipment subindustry provide supplies and services to companies involved in the drilling, evaluation, and completion of oil and gas wells. The subindustry requires a specialized and skilled workforce, which includes engineers and geologists.

                                                                                                          Material risk exposure to Human Capital is driven primarily by:

                                                                                                          1. Labour intensity: the amount of human capital a subindustry disposes of on average.

                                                                                                          2. Labour skills: the level of average skill or training required by employees in a subindustry.

                                                                                                          Sustainalytics' research suggests that labour- and skill-intensive subindustries face added risk to their human capital considerations from both higher implicit expenses, such as wage and benefits, and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenues per employee and labour costs per employee. The findings of our research indicates that the average degree of labour skill and intensity required by the Oil and Gas Equipment subindustry has decreased in the past three years, prompting us to adjust the exposure score accordingly. For these reasons, we believe a subindustry exposure score of 5 is appropriate, and better reflects the risk that Oil and Gas Equipment companies face in terms of hiring, development and retention of employees.

                                                                                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                          Human Capital​MEI.13​Change in MEI Exposure Score​--5​3​-2​
                                                                                                          Resource Use​MEI.20​Change in MEI Exposure Score​--2​5​3​
                                                                                                          Community Relations​MEI.5​Indicator Added​Human Rights Programme​S.4.2.1.2​Previous Weight -New Weight 15.0%Weight Change -
                                                                                                          Community Relations​MEI.5​Indicator Weight Change​Human Rights Policy​S.4.2.1​20.0%10.0%-10.0%
                                                                                                          Community Relations​MEI.5​Indicator Weight Change​Community Development Programmes​S.4.2.11​30.00%25.0%-5.0%

                                                                                                          Details

                                                                                                          Human Capital 

                                                                                                          Companies in the Oil and Gas Exploration and Production subindustry engage in the exploration and production of oil and gas, with no significant downstream operations. The technically challenging and often remote environments that many Oil and Gas drilling companies operate in require a highly specialized and skilled workforce, in areas such as subsea engineering, drilling supervision, and hydraulic fracture modelling. Material risk exposure to Human Capital is driven primarily by two risk factors:

                                                                                                          1. Labour intensity: the amount of human capital a subindustry has at its disposal on average.

                                                                                                          2. Labour skills: the level of average skill or training required by employees in a subindustry.

                                                                                                          Sustainalytics' research suggests that labour- and skill-intensive subindustries face added risk to their human capital considerations from both higher implicit expenses, such as wage and benefits, and implicit costs of heightened employee turnover. We have reassessed exposure for each of these factors based on up-to-date metrics such as revenue per employee and labour costs per employee. The findings of our research indicate that, while the Oil and Gas Exploration and Production subindustry requires highly skilled employees, it is one of the least labour-intensive subindustries. This has prompted us to decrease the exposure for the subindustry to better reflect the risk that Oil and Gas Exploration and Production companies face in terms of hiring, development and retention of employees. For these reasons, we consider a subindustry exposure score of 3 to be appropriate, aligning the subindustry with the same level of risk as other Oil and Gas subindustries. 



                                                                                                          Resource Use 

                                                                                                          The main driver of resource use risk in the Oil and Gas Exploration and Production subindustry is water. The increased use of hydraulic fracturing to extract shale oil and gas requires vast quantities of water and produces significant flowback. The sourcing, use and disposal of water represents a significant portion of operating costs in shale operations. The steady increase of the water footprint of hydraulic fracturing over time has put additional pressure on water reserves, particularly in (semi-) arid regions like the Permian Basin. Note that 38% of the world’s shale resources are in areas that either are arid or are experiencing extremely high levels of water stress (Reig, Luo, and Proctor 2014).

                                                                                                          Besides shale extraction, water is pivotal in drilling and pressure maintenance in conventional Oil and Gas production. During initial production of conventional oil and gas, natural reservoir pressure is typically sufficient to allow fluids to flow out of the reservoir and up to the surface without requiring water injection. However, as reservoirs empty, pressure declines and water is often required to maintain pressure via waterflooding or water injection. Finally, enhanced oil recovery (EOR) requires gas or steam injection to pressurize reservoirs and lower viscosity of remaining oil to recover the last remaining oil. EOR essentially extends the economic life of a reservoir. Offshore conventional developments tend to use treated seawater, therefore reducing their use of freshwater.

                                                                                                          Following the Resource Use scoring approach, the subindustry is ranked 43rd in terms of water intensity. By 2030, the world is projected to face a 40% global water deficit, which could create more competition for and stringent regulations on water use. Climate change and the ensuing issue of water stress elevate companies' exposure to water risks, including the threats of volatile water prices and sudden rate increases for water.

                                                                                                          Subindustry constituents with facilities in regions prone to droughts, aridification, water shortages and other extreme weather events may face business continuity issues, reduced secure access to water resources, community protests and adverse publicity; particularly if numerous stakeholders compete for the same water resources within the same region.

                                                                                                          Additionally, as climate change progresses and water stress worsens, new regulations may restrict water use, which could drive companies to implement contingency plans involving alternate water sources. Overall, the oil and gas industry consumes less water than municipalities, agriculture or mining operations.

                                                                                                          We have increased the exposure score for the subindustry to 5, where the subindustry exposure score is based on water-intensity (water withdrawal per unit of revenue) adjusted by the subindustry level ratio of water consumption per water withdrawal.


                                                                                                           

                                                                                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                            Human Capital​MEI.13​Change in MEI Exposure Score​--2​3​1​
                                                                                                            Resource Use​MEI.20​Change in MEI Exposure Score​--3​5​2​

                                                                                                             

                                                                                                            Details

                                                                                                             
                                                                                                            Human Capital 

                                                                                                            Companies from the Oil & Gas Refining and Marketing subindustry primarily engage in the refining, processing and marketing of oil, gas, and/or refined products. Material risk exposure to Human Capital is driven primarily by two risk drivers: 

                                                                                                            1. Labour intensity: the amount of human capital a subindustry has at its disposal on average.

                                                                                                            2. Labour skills: the level of average skill or training required by employees in a subindustry.

                                                                                                            Sustainalytics' research suggests that labour- and skill-intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenue per employee and labour costs per employee. Our research findings indicate that the average degree of labour skill required by the Oil and Gas Refining and Marketing subindustry has increased in the past three years. Furthermore, Oil & Gas Refining and Marketing companies face higher human capital risk due to the increasing number of people unwilling to work within the Oil and Gas sector. This results in either a labour shortage or the requirement to pay higher wages to attract and retain talent. These trends have prompted us to adjust the exposure accordingly, to better reflect the risk that Oil and Gas Refining and Marketing companies face in terms of hiring, development and retention of employees. 

                                                                                                             
                                                                                                            Resource Use

                                                                                                            Constituents of the Oil & Gas Refining and Marketing subindustry are primarily engaged in the refining and marketing of crude oil and natural gas, and the production of refined products, such as refined petroleum, fuel oil, gasoline, lubricating oils, greases, kerosene, naphtha, butane and other natural gas liquids. The main driver of resource use risk in this subindustry is water. A typical refinery will use about 1.5 barrels of water to process a single barrel of crude oil. However, water use varies significantly depending on the design of the refinery and the refinery configurations involved. A primary differentiator is the type of cooling water system implemented. Around one-tenth of refiners on a per-barrel of oil processed basis use a once-through cooling system that pumps water from an external source through cooling exchangers and feeds directly back into the external water source. Most refiners use a recirculating closed-loop water cooling system that enables reuse of water. Typical refinery configurations, like heavy coking, hydrocracking or fluid catalytic cracking, to process different grades of crude oil also impact the per barrel water-intensity of refiners.

                                                                                                            By 2030 the world is projected to face a 40% global water deficit, which could create more competition for and stringent regulations on water use. Climate change and the ensuing issue of water stress elevate companies' exposure to water risks, including the threats of volatile water prices and sudden rate increases for water. Minimizing net water usage could become increasingly expensive as refineries that rely upon dwindling sources of ground or surface water may be required to modify existing refinery configurations to enable re-use of water and reduce inefficiencies, which could require significant upfront capital outlays.

                                                                                                            Nevertheless, prospective curtailments of water availability provide an incentive for refiners to consider options to reduce their baseline water usage. Similarly, the IMO 2020 reduced the maximum sulfur cap for marine fuels to 0.5%. To upgrade high sulfur/residual fuel oil to lighter middle distillates and gasoline requires additional investment in conversion units like hydrocrackers, which tends to be costly, and is highly water intensive. Therefore, Sustainalytics has increased the exposure score for this subindustry to 5, where the subindustry exposure score is based on water-intensity (water withdrawal per unit of revenue) adjusted by the subindustry-level ratio of water consumption per water withdrawal. This would allow us to align RU exposure for Oil and Gas Refining and Marketing with other Oil and Gas-focused subindustries.

                                                                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                              Human Capital​MEI.13​Change in Exposure Score​--2​3​1​

                                                                                                              Details

                                                                                                              Human Capital

                                                                                                              The Oil and Gas Storage and Transportation subindustry includes diversified midstream natural gas companies, oil and refined product pipelines, coal slurry pipelines, and oil and gas shipping companies. The subindustry requires highly specialized and skilled workforces, such as transport and barge drivers, logistics specialists, chemical engineers and pump system operators. Material risk exposure to Human Capital is driven primarily by two risk drivers:

                                                                                                              1. Labor intensity: the amount of human capital a subindustry has at its disposal on average.

                                                                                                              2. Labour skills: the level of average skill or training required by employees in a subindustry.

                                                                                                              Sustainalytics' research suggests that labour- and skill-intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenue per employee and labour costs per employee.

                                                                                                              Sustainalytics' research findings indicate that the average degree of labour skill required by the Oil and Gas Storage and Transportation subindustry has increased in the past three years. Furthermore, Oil and Gas Storage and Transportation companies face higher human capital risk due to the increasing number of people unwilling to work in the industry, which results in either a labour shortage or the requirement to pay higher wages to attract and retain talent. These trends have prompted us to adjust the exposure accordingly, to better reflect the risk that Oil and Gas Storage and Transportation companies face in terms of hiring, development and retention of employees. 

                                                                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                                                              Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                                                                                              Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                              Business Ethics​MEI.4​Indicator Added​Community Relations - Supply C​hainEV.38​-Event Indicator-

                                                                                                              Details

                                                                                                              Business Ethics

                                                                                                              Issues related to community relations or human rights speak to the way in which a company conducts its business. Over the past few years, we have seen companies face increased scrutiny when it comes to the impact of their business on communities and society at large. We have added the following events - Community Relations, Human Rights and Community Relations (Supply Chain) - under Business Ethics to capture these risks. 

                                                                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                                                              Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                                                                                              Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator -
                                                                                                              Business Ethics​MEI.4​Indicator Added​Community Relations - Supply Chain EV.38​-Event Indicator -

                                                                                                              Details

                                                                                                              Business Ethics 

                                                                                                              Issues related to community relations or human rights speak to the way in which a company conducts its business. Over the past few years, we have seen companies face increased scrutiny when it comes to the impact of their business on communities and society at large. We have added the following events - Community Relations, Human Rights and Community Relations (Supply Chain) - under Business Ethics to capture these risks. 

                                                                                                               

                                                                                                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                Carbon - Own Operations​MEI.8​Change in MEI Exposure Score​--6​7​1​
                                                                                                                Business Ethics​MEI.4​MEI Removed​--20-2
                                                                                                                Human Capital​MEI.13​MEI Added​--0​3​3​
                                                                                                                Human Capital​MEI.13​​Indicator Added
                                                                                                                Freedom of Association Policy

                                                                                                                S.1.1

                                                                                                                Previous WeightNew Weight 12.5%Weight Change
                                                                                                                Human Capital​MEI.13​Indicator Added
                                                                                                                Working Hours Policy

                                                                                                                S.1.1.1

                                                                                                                -17.5%-
                                                                                                                Human Capital​MEI.13​Indicator Added
                                                                                                                Diversity Programmes

                                                                                                                S.1.3

                                                                                                                -7.5%-
                                                                                                                Human Capital​MEI.13​Indicator Added
                                                                                                                Collective Bargaining Agreements

                                                                                                                S.1.4

                                                                                                                -25.0%-
                                                                                                                Human Capital​MEI.13​Indicator Added
                                                                                                                Employee Turnover Rate

                                                                                                                S.1.5

                                                                                                                -12.5%-
                                                                                                                Human Capital​MEI.13​Indicator Added
                                                                                                                Human Capital Development

                                                                                                                S.1.5.2

                                                                                                                -25.0%-
                                                                                                                Occupational Health and Safety​MEI.16​Indicator Weight Change​Health and Safety Management System​S.1.6.2.1​Previous Weight 35.00%New Weight 25.0%Weight Change -10.0%
                                                                                                                Occupational Health and Safety​MEI.16​Indicator Weight Change​Lost Time Incident Rate (LTIR) Trend​S.1.6.5​20.00%15.0%-5.0%
                                                                                                                Occupational Health and Safety​MEI.16​Indicator Weight Change​Employee Fatality Rate​S.1.6.6​25.00%15.0%-10.0%
                                                                                                                Occupational Health and Safety​MEI.16​Indicator Weight Change​Contractor Safety Programme​S.2.2.5​-12.5%-
                                                                                                                Occupational Health and Safety​MEI.16​Indicator Weight Change​Contractor Fatalities​S.2.2.6​-12.5%-

                                                                                                                Details

                                                                                                                Human Capital 

                                                                                                                Companies in the Paper and Pulp subindustry engage in the manufacture of pulp, paper or paper products either from their own forests or from pulp purchased from suppliers. The subindustry faces declining demand for traditional paper products, pressuring subindustry constituents to innovate at a faster pace in order to remain competitive and to stay ahead of customer preferences; for example, to meet the growing demand for paper products that have waterproof coatings but are also recyclable. More innovative products require skilled personnel that cannot be found in traditional Paper and Pulp companies, so firms must compete with other industries. There is high competition for technology and engineering talent across sectors, especially in developed markets where the vast majority of companies within Sustainalytics' coverage universe are located. Companies that fail to attract and retain such talent face innovation setbacks and customer loss. Furthermore, strikes have become more frequent, especially in Northern Europe where unions ask for better working and compensation conditions. Paper and Pulp companies are starting to recognize the issues associated with Human Capital as a material risk and therefore are increasingly identifying the risk of hiring employees with the skills they need in their reporting. This has prompted us to add Human Capital as a material issue for the Paper and Pulp subindustry with an exposure score of 3. We believe the low exposure level is justified by the emerging nature of these trends.

                                                                                                                 


                                                                                                                 

                                                                                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                  Land Use and Biodiversity - Supply Chain​MEI.14.SC​MEI Added​--0​3​3​
                                                                                                                  Land Use and Biodiversity - Supply Chain​MEI.14.SCIndicator Added
                                                                                                                  Supplier Environmental Programmes

                                                                                                                  E.2.1.1

                                                                                                                  Previous Weight -New Weight 15.0% Weight Change
                                                                                                                  Land Use and Biodiversity - Supply Chain​MEI.14.SCIndicator Added
                                                                                                                  Supplier Environmental Certifications

                                                                                                                  E.2.1.2

                                                                                                                  -15.0%-
                                                                                                                  Land Use and Biodiversity - Supply Chain​MEI.14.SCIndicator Added
                                                                                                                  Forest Stewardship Council (FSC) Certified Sourcing

                                                                                                                  E.2.1.8

                                                                                                                  -35.0%-
                                                                                                                  Land Use and Biodiversity - Supply Chain​MEI.14.SCIndicator Added
                                                                                                                  Recycled Material Use

                                                                                                                  E.2.1.7

                                                                                                                  -35.0%-
                                                                                                                  Land Use and Biodiversity - Supply Chain​MEI.14.SCIndicator Added
                                                                                                                  Land Use and Biodiversity - SC

                                                                                                                  EV.43

                                                                                                                  -Event Indicator-

                                                                                                                   

                                                                                                                  Details

                                                                                                                  Land Use and Biodiversity - Supply Chain​

                                                                                                                  Companies operating in the Paper Packaging subindustry engage in the manufacturing of paper packaging products, including corrugated boxes and cardboard containers. The raw material for manufacturing such packaging is wood, which companies usually source from companies in the Paper and Forestry Industry. Historically, the Paper and Forestry Industry has been associated with deforestation issues, particularly in South America and Southeast Asia, exposing paper packaging companies to biodiversity risks of their forestry suppliers. Logging of natural forests can disrupt growth cycles and wildlife habitats and the introduction of non-native, monocrops in plantation forests can negatively alter pre-existing ecosystems.

                                                                                                                   

                                                                                                                  Stakeholder sensitivity to land use issues in natural forests is growing, as forest health is visibly declining in some regions. Consequently, societal scrutiny of how raw material (wood) is sourced for companies operating in this subindustry has been increasing over the past few years. The subindustry is under increasing pressure from consumers to offer paper packaging sourced from recycled materials or from sustainably managed forests. Therefore, companies that source Forest Stewardship Council (FSC) -certified paper or recycled paper are more likely to gain a competitive advantage and increase market share, while firms that fail to adapt can potentially face falling sales and reputational risk. This has prompted us to add Land Use and Biodiversity – Supply Chain as a material issue for the Paper Packaging Subindustry. Due to the emerging nature of this trend, we consider a Subindustry exposure score of 3 to be appropriate.

                                                                                                                   


                                                                                                                   

                                                                                                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                    Land Use and Biodiversity - Supply Chain​MEI.14.SC​Change in Exposure Score​--3​4​1​
                                                                                                                    Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                                                                                                    Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                                    Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-

                                                                                                                    Details

                                                                                                                    Land Use and Biodiversity - Supply Chain​

                                                                                                                    Companies in the Personal Products subindustry engage in the manufacturing and retail of beauty and grooming products, including cosmetics, skincare, haircare, perfumes and oral hygiene. Personal Products companies face increasing scrutiny regarding land use and biodiversity issues in their supply chains, especially regarding the sourcing of palm oil which is used as input for soaps, shampoos and lipsticks.

                                                                                                                     

                                                                                                                    Over the past couple of years, the issues of deforestation and biodiversity loss have received increased attention from governments and investors, as impacted communities and global civil society organizations continue to highlight the social and environmental costs of forest loss, and NGO reports, journalist investigations and media coverage of the issue have increased. The European Commission presented in November 2021 a proposed regulation on deforestation-free commodities and products in the European Union, which is likely to approve the regulation. This means there will be more legal, financial and reputational risks in cases of non-compliance, together with increased pressure on companies to enhance their management efforts.

                                                                                                                     

                                                                                                                    Still, supply-chain management in general and deforestation-related efforts within Personal Products companies are still subpar. Sustainalytics' research suggests that the Household and Personal Products (HPP) industry, as a whole, has substantial gaps, with less than a third of these companies having adequate, strong or very strong related policies and programmes. In addition, environmental supplier certifications are also not common – suppliers of 60% of HPP companies have received none. Companies could face operational risks if they have to cancel contracts with suppliers found to be involved in illegal deforestation. These concerns are further amplified by the number of Land Use and Biodiversity - Supply Chain controversies, which have been on the rise in the past few years and are indicative of an increased trend of exposure to this issue for companies in this subindustry. These trends bring Personal Products companies toward the medium side of the spectrum in terms of Land Use and Biodiversity – Supply Chain risks. We are therefore increasing the exposure score for the Subindustry to 4 to better reflect the risks that Personal Products companies face. 



                                                                                                                     

                                                                                                                     

                                                                                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                      Bribery and Corruption​MEI.3​Change in MEI Exposure Score​--6​4​-2​
                                                                                                                      Human Capital
                                                                                                                      MEI.13

                                                                                                                      Beta Indicator Added
                                                                                                                      Generic Drugs

                                                                                                                      EA.P.16

                                                                                                                      ---
                                                                                                                      Access to Basic Services
                                                                                                                      MEI.1

                                                                                                                      Beta Indicator Added
                                                                                                                      Generic Drugs

                                                                                                                      EA.P.16

                                                                                                                      ---

                                                                                                                      Details

                                                                                                                      Bribery and Corruption​

                                                                                                                       

                                                                                                                      The Pharmaceutical subindustry comprises a diverse range of innovative companies that research, develop, produce and market medicines. During the early- to mid-2010s, companies within the subindustry were implicated in a number of high- profile bribery and corruption scandals involving the approval of medicines and illegal kickback schemes offered to healthcare professionals. Following improvements in company policies and more stringent regulatory oversight, bribery and corruption incidents have been declining among subindustry constituents within Sustainalytics' universe, with the number of incidents recorded in 2021 being 65% lower than in 2019. Furthermore, the number of high-category events (Category 3 or higher) has fallen by 40% from 2019 to 2021, with the highest controversy in the subindustry assessed as a Category 3. Additionally, 96% of the 573 companies within the subindustry have no relevant controversies linked to Bribery and Corruption, 3.5% have Category 1 or 2 events, while 0.5% have Category 3 events – highlighting a trend of declining company exposure to this Material ESG Issue. While the Pharmaceuticals subindustry's risk exposure to this issue is still considered "medium", the recent trends observed move it toward the lower end of the scale, at 4 (close to low exposure). 


                                                                                                                       

                                                                                                                      Beta Indicators Added
                                                                                                                      HUMAN CAPITAL - generic drugs

                                                                                                                      Generic drugs contain the same chemical ingredient as pre-existing products that have lost their patent protection. Thus, companies manufacturing generics require far less research and development input and fewer highly trained employees than companies that research, develop, and market specialty drugs. Effectively, the average research and development (R&D) intensity of generic drug manufacturers is substantially lower than the one of specialty pharmaceutical companies, being around 9% (compared with around 20% of traditional pharmaceutical companies). Lower R&D intensity and focus on innovation would in turn lower exposure to Human Capital-related risks (especially related to the retention and attraction of qualified employees). Therefore, a substantial percentage of revenues derived from generics would decrease a company’s exposure to Human Capital risks. 

                                                                                                                       

                                                                                                                      Access to Basic Services - generic drugs

                                                                                                                      Generics are usually priced well below branded drugs, with the average manufacture price of generics being between 50% to 80% lower than the branded drug (depending on the generic competition within the market). Therefore, generic manufacturers foster affordability and access to medicines, hence they face decreasing pricing risks and scrutiny. Consequently, companies that derive a substantial amount of revenues from generics would be less exposed to pricing and affordably issues. 

                                                                                                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                        Land Use and Biodiversity​MEI.14​Change in MEI Exposure Score​--3​4​1​
                                                                                                                        Resource Use​MEI.20​Change in MEI Exposure Score​--8​7​-1​
                                                                                                                        Occupational Health and Safety​MEI.16​Indicator Removed​HIV/Aids Programmes​S.1.6.3​Previous Weight 5.00%New Weight 0.0%Weight Change -5.0%
                                                                                                                        Occupational Health and Safety​MEI.16​Indicator Weight Change​Health and Safety Management System​S.1.6.2.1​20.00%25.0%5.0%
                                                                                                                        Occupational Health and Safety​MEI.16​Indicator Weight Change​Health & Safety Certifications​S.1.6.4​7.50%20.0%12.5%
                                                                                                                        Occupational Health and Safety​MEI.16​Indicator Weight Change​Lost Time Incident Rate (LTIR) Trend​S.1.6.5​12.5%15.0%2.5%
                                                                                                                        Occupational Health and Safety​MEI.16​Indicator Weight Change​Contractor Safety Programme​S.2.2.5​15.00%12.5%-2.5%
                                                                                                                        Occupational Health and Safety​MEI.16​Indicator Removed​Emergency Response Programme​E.1.3.1​12.50%0.0%-12.5%

                                                                                                                        Details

                                                                                                                        Land Use and Biodiversity 

                                                                                                                        Companies in the Precious Metals Mining subindustry engage in mining or the processing of precious metals and minerals such as platinum, palladium, rhodium, silver and precious gemstones. (We exclude companies focused on gold mining or processing).

                                                                                                                         

                                                                                                                        Whether underground or open pit, mines have a large environmental footprint and their construction and supporting infrastructure significantly alter landscapes and disrupt the habitat of flora and fauna. Over the past couple of years, the biodiversity-loss issue has received increased attention, as impacted communities and global civil society organizations continue to highlight the social and environmental costs, and NGO reports, journalist investigations and media coverage of the issue have increased. Investment firms have begun to measure and report their impacts on biodiversity, which could have direct implications for industries that threaten biodiversity or high conservation value environments. As such, some major investment firms have expressed their interest in two new financial frameworks on biodiversity loss: the Task Force on Nature-related Financial Disclosures, or TNFD; and the Partnership for Biodiversity Accounting Financials, or PBAF.

                                                                                                                         

                                                                                                                        Within the past 3-5 years, we have also seen an increase in the frequency and scale of protests against the approval of new mining projects, often related to biodiversity and land-use issues. Severe environmental breaches can result in denied, suspended or revoked mining permits and millions in unplanned rehabilitation costs.  These trends bring Precious Metals Mining companies toward the "medium" side of the spectrum in terms of Land Use and Biodiversity risks. We are therefore increasing the exposure score for the Subindustry to 4 to better reflect the risks that companies face, in line with other mining subindustries.

                                                                                                                         

                                                                                                                        Resource Use

                                                                                                                        The main driver of resource-use risk in the Precious Metals Mining subindustry is water. Mining precious metals is extremely water intensive as it is used in numerous processes, such as ore processing, dust suppression, and heating and cooling of equipment. For some subindustry constituents, water is also used as a solvent for chemical reagents to separate the desired metals. An additional limitation is that mining projects are tied to locations abundant with geologically concentrated minerals and ore bodies provided it is technically and economically viable. Numerous mining companies operate in sensitive and challenging ecological and hydrological environments, such as arid regions in central Australia or the Chilean Andes, (sub-) tropical regions in Indonesia or the sub-arctic areas of Canada and Russia. By 2030, the world is projected to face a 40% global water deficit, which could create more competition for, and stringent regulations on, water use. Climate change and the ensuing issue of water stress elevate companies' exposure to water risks, including the threats of volatile water prices and sudden rate increases for water.

                                                                                                                         

                                                                                                                        Mining companies in regions prone to droughts, aridification, water shortages and other extreme weather events may face business continuity issues, reduced secure access to water resources, community protests and adverse publicity; particularly if numerous stakeholders compete for the same water resources within the same region. Additionally, as climate change progresses and water stress worsen, new regulations may restrict water use, which could drive companies to implement contingency plans involving alternate water sources. We have decreased the exposure score for the subindustry from 8 to 7, where the subindustry exposure score is based on reported water-intensity. This would also allow us to align resource-use exposure for the Precious Metals Mining subindustry with other mining-focused subindustries.

                                                                                                                         

                                                                                                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                          Data Privacy and Security​MEI.6​Change in Exposure Score​--6​7​1​
                                                                                                                          ESG Integration - Financials​MEI.17​Indicator Weight Change​Responsible Investment Programme​G.1.3.6​Previous Weight 17.50%New Weight 12.5%Weight Change -5.0%
                                                                                                                          ESG Integration - Financials​MEI.17​Indicator Weight Change​Underwriting Standards​G.1.3.9​17.50%15.0%-2.5%
                                                                                                                          ESG Integration - Financials​MEI.17​Indicator Weight Change​Physical Climate Risk Management​E.1.6.2​17.50%25.0%7.5%

                                                                                                                          Details

                                                                                                                          Data Privacy and Security​

                                                                                                                          Property and Casualty Insurance establishments are primarily engaged in underwriting insurance policies for liability and property incidents, including automobile accidents, real estate fire or theft, and tornadoes. Subindustry constituents face increasing risk to Data Privacy and Security issues due to the continuously growing volume of highly sensitive personal information that they collect. Property and Casualty insurers store and manage substantial amounts of sensitive data, including personal identification numbers and personal health information. They also collect behavioral data through telematics, agent interactions and smart homes. Moreover, due to the essential nature of their business to society, property and casualty insurers have been identified as ‘Critical Infrastructure’ assets. Companies in this subindustry are also exposed to tightening regulatory standards with regards to data privacy and security​ (e.g. EU-GDPR) and increased cyber security risks due to geopolitical tensions. The consideration of these factors indicates that the current exposure score (6) underestimates the risks related to Data Privacy and Security​ or Property and Casualty Insurance companies, prompting us to increase it by one point, to a new exposure score of 7.

                                                                                                                           

                                                                                                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                                                                            Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​35.00%32.5%-2.5%
                                                                                                                            Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-2.5%-
                                                                                                                            Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                                                                                                                             

                                                                                                                             

                                                                                                                             

                                                                                                                             

                                                                                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                              Business Ethics​MEI.4​MEI Added​--0​3​3​
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Bribery & Corruption Policy


                                                                                                                              G.1.1

                                                                                                                              Previous Weight
                                                                                                                              New Weight 7.5%

                                                                                                                              Weight Change
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Bribery & Corruption Programmes

                                                                                                                              G.1.1.1

                                                                                                                              -
                                                                                                                              15.0%

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Whistleblower Programmes

                                                                                                                              G.1.2

                                                                                                                              -
                                                                                                                              20.0%

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Business Ethics Programme

                                                                                                                              G.1.2.1

                                                                                                                              -
                                                                                                                              30.0%

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Political Involvement Policy

                                                                                                                              G.3.1

                                                                                                                              -
                                                                                                                              12.5%

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Lobbying and Political Expenses

                                                                                                                              G.3.2

                                                                                                                              -
                                                                                                                              15.0%

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Accounting and Taxation

                                                                                                                              EV.2

                                                                                                                              -
                                                                                                                              Event Indicator

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Anti-Competitive Practices

                                                                                                                              EV.4

                                                                                                                              -
                                                                                                                              Event Indicator

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Bribery and Corruption

                                                                                                                              EV.6

                                                                                                                              -
                                                                                                                              Event Indicator

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Business Ethics

                                                                                                                              EV.7

                                                                                                                              -
                                                                                                                              Event Indicator

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Intellectual Property

                                                                                                                              EV.21

                                                                                                                              -
                                                                                                                              Event Indicator

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Lobbying and Public Policy

                                                                                                                              EV.23

                                                                                                                              -
                                                                                                                              Event Indicator

                                                                                                                              -
                                                                                                                              Business Ethics​MEI.4Indicator Added
                                                                                                                              Sanctions

                                                                                                                              EV.30

                                                                                                                              -
                                                                                                                              Event Indicator

                                                                                                                              -
                                                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Removed​Emergency Response Programme​E.1.3.1​Previous Weight 15.00%New Weight 0.0%Weight Change -15.0%
                                                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Environmental Management System​E.1.2​7.50%15.0%7.5%
                                                                                                                              Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​EMS Certification​E.1.3​7.50%15.0%7.5%

                                                                                                                              Details

                                                                                                                              Business Ethics

                                                                                                                              The Rail Transport subindustry includes companies primarily engaged in providing passenger transportation and rail-freight services, as well as operating terminals, switching facilities, and tunnels used by railroads. The subindustry is characterized by the existence of network effects, creating natural monopoly conditions. High capital intensity, rate increases and differential rates charged to shippers are inviting more customer and regulatory scrutiny at the industry level, with the potential for regulatory changes to impact company value significantly.

                                                                                                                               

                                                                                                                              In April 2021, the European Commission fined railway companies Österreichische Bundesbahnen (ÖBB), Deutsche Bahn (DB) and Société Nationale des Chemins de fer belges / Nationale Maatschappij der Belgische Spoorwegen (SNCB) a total of US$48 million for breaching EU antitrust rules. The companies participated in a customer allocation cartel, which involved cross-border rail cargo transport services on block trains on key rail corridors in the EU. In the US, Executive Order 14036 “Promoting Competition in the American Economy” with 72 initiatives, was issued in July 2021. This may affect the ability of rail freight companies and other track owners to prioritize their own freight. Delays and disruptions could lead to dissatisfied customers and loss of market share. For these reasons, we have added Business Ethics as a material issue for the Rail Transport subindustry with an exposure score of 3 (low), similar to other Transportation subindustries.



                                                                                                                               

                                                                                                                               

                                                                                                                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                Occupational Health and Safety​MEI.16​MEI Added​--0​3​3​
                                                                                                                                Occupational Health and Safety​MEI.16Indicator Added
                                                                                                                                Health and Safety Management System

                                                                                                                                S.1.6.2.1

                                                                                                                                Previous WeightNew Weight 35.0%Weight Change -
                                                                                                                                Occupational Health and Safety​MEI.16Indicator Added
                                                                                                                                Health & Safety Certifications

                                                                                                                                S.1.6.4

                                                                                                                                -2.5%-
                                                                                                                                Occupational Health and Safety​MEI.16Indicator Added
                                                                                                                                Lost Time Incident Rate (LTIR) Trend

                                                                                                                                S.1.6.5

                                                                                                                                -25.0%-
                                                                                                                                Occupational Health and Safety​MEI.16Indicator Added
                                                                                                                                Employee Fatality Rate

                                                                                                                                S.1.6.6

                                                                                                                                -5.0%-
                                                                                                                                Occupational Health and Safety​MEI.16Indicator Added
                                                                                                                                Contractor Safety Programme

                                                                                                                                S.2.2.5

                                                                                                                                -25.0%-
                                                                                                                                Occupational Health and Safety​MEI.16Indicator Added
                                                                                                                                Contractor Fatalities

                                                                                                                                S.2.2.6

                                                                                                                                -7.5%-
                                                                                                                                Occupational Health and Safety​MEI.16Indicator Added
                                                                                                                                Occupational Health and Safety

                                                                                                                                EV.20
                                                                                                                                -Event Indicator-
                                                                                                                                Product Governance​MEI.18​Indicator Added​Data Privacy and Security​EV.27​-Event Indicator-

                                                                                                                                Details

                                                                                                                                Occupational Health and Safety​

                                                                                                                                Companies in the Real Estate Development subindustry are primarily engaged in developing sites and properties for subsequent sale. Both land development and construction activities require site work, and several companies employ their own workers and contractors. Globally, companies in the subindustry have been exposed to tightening regulatory standards regarding occupational health and safety issues. In 2021, for example, China’s Law on Workforce Safety was reinforced, imposing higher penalties for occupational safety violations. In addition, in light of the health concerns raised by the COVID-19 pandemic, stakeholder sensitivity to occupational safety management has increased. As such, companies involved in incidents are more exposed to higher reputational damage. These factors have prompted us to add Occupational Health and Safety as a material issue for Real Estate Development companies. To ensure consistency with the Diversified Real Estate subindustry, we consider an exposure score of 3 to be appropriate.




                                                                                                                                 

                                                                                                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                  Business Ethics​MEI.4​Change in Exposure Score​--4​5​1​
                                                                                                                                  Human Capital​MEI.13​Change in Exposure Score​--5​4​-1​
                                                                                                                                  Product Governance​MEI.18​Indicator Added​Data Privacy and Security​EV.27​-New Weight Event Indicator-

                                                                                                                                  Details

                                                                                                                                  Business Ethics

                                                                                                                                  Real Estate Managers are primarily engaged in operating and leasing real estate properties, including residential and non-residential buildings. As part of the operational governance practices, companies in the subindustry are subject to multiple business ethics issues, especially related to bribery, corruption, accounting and taxation. In light of increasing investor and regulatory scrutiny of business transparency, regulatory compliance and accounting practices of real estate property owners/managers, we consider that Real Estate managers are exposed to relatively higher business ethics risks. Furthermore, the cyclical economic environment after the COVID-19 pandemic - as recently observed in Germany and China - may lead to increasing controversies around violations of accounting principles. The consideration of those factors indicates that the current exposure score (4) underestimates the risks related to business ethics for Real Estate Management companies, prompting us to increase it by one point, to a new exposure score of 5. 

                                                                                                                                   

                                                                                                                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                    Business Ethics​MEI.4​MEI Added​--0​44
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Bribery & Corruption Policy


                                                                                                                                    G.1.1

                                                                                                                                    Previous Weight
                                                                                                                                    New Weight 15.0%

                                                                                                                                    Weight Change
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Bribery & Corruption Programmes

                                                                                                                                    G.1.1.1

                                                                                                                                    -
                                                                                                                                    25.0%

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Whistleblower Programmes

                                                                                                                                    G.1.2

                                                                                                                                    -
                                                                                                                                    25.0%

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Business Ethics Programme

                                                                                                                                    G.1.2.1

                                                                                                                                    -
                                                                                                                                    20.0%

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Political Involvement Policy

                                                                                                                                    G.3.1

                                                                                                                                    -
                                                                                                                                    10.0%

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Lobbying and Political Expenses

                                                                                                                                    G.3.2

                                                                                                                                    -
                                                                                                                                    5.0%

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Accounting and Taxation

                                                                                                                                    EV.2

                                                                                                                                    -
                                                                                                                                    Event Indicator

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Anti-Competitive Practices

                                                                                                                                    EV.4

                                                                                                                                    -
                                                                                                                                    Event Indicator

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Bribery and Corruption

                                                                                                                                    EV.6

                                                                                                                                    -
                                                                                                                                    Event Indicator

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Business Ethics

                                                                                                                                    EV.7

                                                                                                                                    -
                                                                                                                                    Event Indicator

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Lobbying and Public Policy

                                                                                                                                    EV.23

                                                                                                                                    -
                                                                                                                                    Event Indicator

                                                                                                                                    -
                                                                                                                                    Business Ethics​MEI.4Indicator Added
                                                                                                                                    Sanctions

                                                                                                                                    EV.30

                                                                                                                                    -
                                                                                                                                    Event Indicator

                                                                                                                                    -

                                                                                                                                    Details

                                                                                                                                    Business Ethics

                                                                                                                                    Real Estate Services providers include real estate agents, brokers, and appraisers, which are primarily engaged in selling, buying, renting and managing real estate for third parties. As part of the operational governance practices, companies in the subindustry are subject to multiple business ethics issues, especially related to bribery, corruption, accounting and taxation. Real Estate Services companies usually operate in multiple jurisdictions, requiring compliance with different regulations and frameworks regarding ethical principles. Furthermore, as witnessed in China and Hong Kong after the pandemic, the cyclical economic environment may lead to controversies around violations of accounting principles, which have also been the case for service companies. In addition, we believe the subindustry needs to be better aligned with other Real Estate subindustries (Business Ethics has been added as a material issue to these subindustries). These factors have prompted us to add Business Ethics as a material issue for Real Estate Services companies. To ensure consistency with the Real Estate subindustries, we believe an exposure score of 4 is appropriate.


                                                                                                                                     

                                                                                                                                     

                                                                                                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                      Business Ethics​MEI.4​Change in Exposure Score​--5​6​1​
                                                                                                                                      ESG Integration - Financials​MEI.17​Indicator Weight Change​PRI Signatory​G.1.3.1​Previous Weight 2.50%New Weight 7.5%Weight Change 5.0%
                                                                                                                                      ESG Integration - Financials​MEI.17​Indicator Weight Change​Equator Principles Signatory​G.1.3.5​7.50%2.5%-5.0%

                                                                                                                                       

                                                                                                                                       

                                                                                                                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                        Human Capital​MEI.13​Change in Exposure Score​--6​5​-1​
                                                                                                                                        ESG Integration - Financials​MEI.17​Change in Exposure Score​--8​7​-1​
                                                                                                                                        Resilience​MEI.19​Change in Exposure Score​--6​4​-2​

                                                                                                                                         

                                                                                                                                         

                                                                                                                                         

                                                                                                                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                          Business Ethics​MEI.4​Change in Exposure Score​--4​5​1​

                                                                                                                                           

                                                                                                                                           

                                                                                                                                           

                                                                                                                                           

                                                                                                                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                            Human Capital​MEI.13​Change in Exposure Score​--4​3​-1​

                                                                                                                                             

                                                                                                                                             

                                                                                                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                              Product Governance​MEI.18​Change in Exposure Score​--8​5​-3​
                                                                                                                                              Land Use and Biodiversity - Supply Chain​MEI.14.SC​Change in Exposure Score​--2​4​2​
                                                                                                                                              Emissions, Effluents and Waste​MEI.7​MEI Added​--0​2​2​
                                                                                                                                              Emissions, Effluents and Waste​MEI.7Indicator Added
                                                                                                                                              Environmental Policy

                                                                                                                                              E.1.1

                                                                                                                                              Previous Weight - New Weight 7.5%Weight Change
                                                                                                                                              Emissions, Effluents and Waste​MEI.7Indicator Added
                                                                                                                                              Environmental Management System

                                                                                                                                              E.1.2

                                                                                                                                              -12.5%-
                                                                                                                                              Emissions, Effluents and Waste​MEI.7Indicator Added
                                                                                                                                              Solid Waste Management

                                                                                                                                              E.1.2.6.1

                                                                                                                                              -72.5%-
                                                                                                                                              Emissions, Effluents and Waste​MEI.7Indicator Added
                                                                                                                                              EMS Certification

                                                                                                                                              E.1.3

                                                                                                                                              -7.5%-
                                                                                                                                              Emissions, Effluents and Waste​MEI.7Indicator Added
                                                                                                                                              Emissions, Effluents and Waste

                                                                                                                                              EV.14

                                                                                                                                              -Event Indicator-
                                                                                                                                              Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                                                                                                                              Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                                                              Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-

                                                                                                                                               

                                                                                                                                              Details

                                                                                                                                              Emissions, Effluents and Waste​

                                                                                                                                              Companies in the Restaurants subindustry include owners and operators of restaurants, bars, pubs, take-away facilities and providers of food-catering services. These companies produce high volumes of waste, mainly in two main forms: food and packaging. Food waste includes ingredients, waste created during cooking, such as oil, and waste in terms of the final product. Food waste results in loss of resources, such as water, energy, land, labour and capital. Packaging waste includes packaging received from suppliers and packaging disposed by consumers. Municipal and federal regulations around packaging are likely to continue evolving and push companies to improve the recyclability of the packaging they use. In addition, the Sustainability Accounting Standards Board (SASB) notes waste and water management as key issues for the Restaurant industry. These trends and developments have prompted us to add Emissions, Effluents, and Waste as a material issue for the Restaurants subindustry. Due to the emerging nature of this issue, and currently the low materiality of regulation on companies’ enterprise value (expected to increase in the coming years), we believe a subindustry exposure score of 2 is appropriate.

                                                                                                                                               

                                                                                                                                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                Data Privacy and Security​MEI.6​Change in Exposure Score​--2​4​2​
                                                                                                                                                Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​Previous Weight -New Weight Event IndicatorWeight Change -
                                                                                                                                                Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                                                                Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-
                                                                                                                                                Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​45.00%40.0%-5.0%
                                                                                                                                                Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-

                                                                                                                                                Details

                                                                                                                                                Data Privacy and Security​

                                                                                                                                                Retail Apparel companies are primarily engaged in commercializing all sorts of apparel and accessories, including formal wear and costume rental, accessory stores, shoe stores, luggage and leather goods stores, jewelry and watch stores. Over the past few years, particularly through the COVID-19 pandemic, we have seen an increase in the revenue that is derived via online channels for companies in the subindustry, considerably increasing their exposure to data privacy and security risks. This ongoing trend makes retailers significantly exposed to sensitive data (especially personal consumer and payment information) and digitized systems. The consideration of these factors signals that the current exposure score (2) underestimates the risks related to data privacy and security for the Retail Apparel subindustry, especially considering that companies are still working to understand and mitigate risks surfacing from an increased use of online channels. We have updated the exposure score to 4. 

                                                                                                                                                 

                                                                                                                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                                                                                                  Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                                                                  Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Scope of Social Supplier Standards​S.2.1​15.00%12.5%-2.5%
                                                                                                                                                  Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Signatory to Responsible Business Alliance (RBA)​S.2.1.2​-7.5%-
                                                                                                                                                  Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Conflict Minerals Policy​S.2.1.3​15.00%10.0%-5.0%
                                                                                                                                                  Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​37.50%35.0%-2.5%
                                                                                                                                                  Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-2.5%-
                                                                                                                                                  Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                                                                                                                                                   

                                                                                                                                                   

                                                                                                                                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                    Carbon - Own Operations​MEI.8​MEI Added​--0​3​3​
                                                                                                                                                    Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​Previous Weight -New Weight Event IndicatorWeight Change -
                                                                                                                                                    Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​EMS Certification​E.1.3​7.50%5.0%-2.5%
                                                                                                                                                    Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Hazardous Waste Management​E.1.3.2​25.00%30.0%5.0%
                                                                                                                                                    Emissions, Effluents and Waste​MEI.7​Indicator Weight Change​Non-GHG Air Emissions Programmes​E.1.3.3​25.00%22.5%-2.5%
                                                                                                                                                    Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​37.50%35.0%-2.5%
                                                                                                                                                    Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-2.5%-
                                                                                                                                                    Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                                                                                                                                                    Details

                                                                                                                                                     

                                                                                                                                                     

                                                                                                                                                    Carbon - Own Operations

                                                                                                                                                    Manufacturers in the Semiconductor Equipment subindustry primarily engage in producing equipment used in the manufacture of semiconductors, an electronic device or integrated circuit, used in a variety of applications, such as computer, automotive and telecommunications products. Rapid technological advancements are being integrated at an accelerated pace and demand for semiconductors has risen accordingly, necessitating the production of larger volumes of semiconductor equipment to keep pace with higher demand. As subindustry constituents emit greenhouse gases during the production of semiconductor equipment, they may face greater regulatory risk with possible implementation of new carbon taxes and carbon laws depending on where the company and its production facilities are located.

                                                                                                                                                    Sustainalytics has added the Carbon – Own Operations Material ESG Issue to account for carbon emissions from the semiconductor equipment manufacturing process. Given the SI’s energy consumption and related carbon footprint is relatively low compared to its peers, particularly the Semiconductor Design and Manufacturing SI, we believe an MEI exposure score of 3 is appropriate for the Semiconductor Equipment subindustry. 

                                                                                                                                                     

                                                                                                                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Weight New WeightWeight Change
                                                                                                                                                      Carbon - Own Operations​MEI.8​Indicator Weight Change​Green Logistics Programmes​E.1.7.1​22.50%27.5%5.0%
                                                                                                                                                      Carbon - Own Operations​MEI.8​Indicator Weight Change​Carbon Intensity​E.1.9​12.50%10.0%-2.5%
                                                                                                                                                      Carbon - Own Operations​MEI.8​Indicator Weight Change​Carbon Intensity Trend​E.1.10​17.50%15.0%-2.5%
                                                                                                                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                      Land Use and Biodiversity - Supply Chain​MEI.14.SC​MEI Added​--0​3​3​
                                                                                                                                                      Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added
                                                                                                                                                      Green Procurement Policy

                                                                                                                                                      E.2.1

                                                                                                                                                      Previous Weight -New Weight 5.0%Weight Change
                                                                                                                                                      Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added
                                                                                                                                                      Supplier Environmental Programmes

                                                                                                                                                      E.2.1.1

                                                                                                                                                      -25.0%-
                                                                                                                                                      Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added
                                                                                                                                                      Supplier Environmental Certifications

                                                                                                                                                      E.2.1.2

                                                                                                                                                      -5.0%-
                                                                                                                                                      Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added
                                                                                                                                                      Sustainable Agriculture Programmes

                                                                                                                                                      E.2.1.3

                                                                                                                                                      -25.0%-
                                                                                                                                                      Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added
                                                                                                                                                      Deforestation Policy

                                                                                                                                                      E.1.2.9

                                                                                                                                                      -15.0%-
                                                                                                                                                      Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added
                                                                                                                                                      Deforestation Programme

                                                                                                                                                      E.1.2.10

                                                                                                                                                      -25.0% 
                                                                                                                                                      Land Use and Biodiversity - Supply Chain​MEI.14.SC​Indicator Added
                                                                                                                                                      Land Use and Biodiversity - SC

                                                                                                                                                      EV.43

                                                                                                                                                      -Event Indicator-
                                                                                                                                                      Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                                                                                                                                      Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                                                                      Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-

                                                                                                                                                      Details

                                                                                                                                                      Land Use and Biodiversity - Supply Chain​

                                                                                                                                                      The Soft Drinks subindustry contains several companies that typically produce and sell a range of non-alcoholic beverages, which can include carbonated soft drinks or “soda”, fruit juices, mineral water, caffeinated or dairy-based drinks. Soft Drinks companies are exposed to Land Use and Biodiversity issues in their supply chains mainly through the procurement of agricultural ingredients (notably sugar, coffee, fruits, tea and others) whose production may be linked with forest fragmentation, soil-quality degradation, species extinction and increased greenhouse gas emissions due to agrichemicals use. Furthermore, an increasing number of Soft Drinks companies are offering snacks that use palm oil.

                                                                                                                                                       

                                                                                                                                                      Over the past couple of years, the issues of deforestation and biodiversity loss have received increased attention from governments and investors, as impacted communities and global civil society organizations continue to highlight the social and environmental costs of forest loss, and NGO reports, journalist investigations and media coverage of the issue have increased. In November 2021, the European Commission presented a regulation proposal on deforestation-free commodities and products in the EU, which is likely to approve the proposal. This means there will be more legal, financial and reputational risks in cases of non-compliance together with increased pressure on companies to enhance their management efforts. The reputational risks of deforestation, particularly in areas of high conservation value or carbon stock, are rising. Companies are starting to recognize the issues associated with Land Use and Biodiversity as a material risk and therefore are increasingly reporting on the issue, for their own operations, and in terms of their supply chain. These changes have led to heightened awareness and therefore increased demand for strong environmental sourcing criteria, which include considerations for biodiversity and deforestation risk management. This has prompted Sustainalytics to add Land Use and Biodiversity – Supply Chain as a material issue for the Soft Drinks Subindustry. 

                                                                                                                                                       

                                                                                                                                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                        Business Ethics​MEI.4​Change in Exposure Score​--6​4​-2​

                                                                                                                                                        Details

                                                                                                                                                        Business Ethics​

                                                                                                                                                        Specialty Chemicals companies use base chemicals to produce value-added chemicals that are used in a variety of products. For companies operating in this subindustry, and more generally in the Chemicals industry, the main areas for unethical conduct are bribery and corruption, political lobbying (to delay regulation for specific substances or product labelling), tax and anti-competitive practices. High-level controversies (Category 3 or above) are not common in the subindustry, with no company (out of 158 from this subindustry within Sustainalytics' universe) involved in any high-level controversy related to Business Ethics. Additionally, 87% of constituents are not involved in any business ethics events. Therefore, the low incident frequency, combined with low materiality of events prompted us to reassess the subindustry exposure to Business Ethics, decreasing the risk exposure from 6 to 4 points. 



                                                                                                                                                         


                                                                                                                                                         

                                                                                                                                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                          Data Privacy and Security​MEI.6​Change in Exposure Score​--2​4​2​
                                                                                                                                                          Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​Previous Weight -New Weight Event IndicatorWeight Change -
                                                                                                                                                          Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                                                                          Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-
                                                                                                                                                          Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​45.00%40.0%-5.0%
                                                                                                                                                          Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-

                                                                                                                                                          Details

                                                                                                                                                           

                                                                                                                                                          Data Privacy and Security​

                                                                                                                                                          Companies in the Specialty Retail subindustry are primarily engaged in selling household items, including stores specializing in toys, sports, office supply and kitchen utensils. Over the past few years, particularly through the COVID-19 pandemic, we have seen an increase in the revenue that is derived via online channels for companies in the subindustry, considerably increasing their exposure to data privacy and security risks. This ongoing trend makes retailers significantly exposed to sensitive data (especially personal consumer and payment information) and digitized systems. The consideration of these factors signals that the current exposure score (2) underestimates the risks related to data privacy and security for the Specialty Retail subindustry, especially considering that companies are still working to understand and mitigate risks surfacing from an increased use of online channels. Sustainalytics has updated the exposure score to 4. 

                                                                                                                                                           

                                                                                                                                                           

                                                                                                                                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                            Resource Use​MEI.20​Change in Exposure Score​--4​5​1​
                                                                                                                                                            Occupational Health and Safety​MEI.16​Indicator Weight Change​Health and Safety Management System​S.1.6.2.1​Previous Weight 22.50%New Weight 25.0%Weight Change 2.5%
                                                                                                                                                            Occupational Health and Safety​MEI.16​Indicator Weight Change​Health & Safety Certifications​S.1.6.4​7.50%20.0%12.5%
                                                                                                                                                            Occupational Health and Safety​MEI.16​Indicator Weight Change​Lost Time Incident Rate (LTIR Trend​)S.1.6.5​12.50%15.0%2.5%
                                                                                                                                                            Occupational Health and Safety​MEI.16​Indicator Weight Change​Contractor Safety Programme​S.2.2.5​15.00%12.5%-2.5%
                                                                                                                                                            Occupational Health and Safety​MEI.16​Indicator Weight Change​Contractor Fatalities​S.2.2.6​15.00%12.5%-2.5%
                                                                                                                                                            Occupational Health and Safety​MEI.16​Indicator Removed​Emergency Response Programme​E.1.3.1​12.50%0.0%-12.5%
                                                                                                                                                            Emissions, Effluents and Waste
                                                                                                                                                            MEI.7

                                                                                                                                                            Beta Indicator Removed
                                                                                                                                                            NOx Emissions

                                                                                                                                                            EA.P.18

                                                                                                                                                            ---

                                                                                                                                                            Details

                                                                                                                                                            Resource Use 

                                                                                                                                                            Producers of iron and steel and related products are primarily engaged in mining, milling, beneficiating or otherwise preparing iron ores, ferroalloy ores or manganiferous ores valued chiefly for their iron content. A few constituents of the Steel subindustry are also involved in manufacturing blast furnaces and steel products. The main drivers of resource use risk in the Steel subindustry are operational reliance on water and other non-water scarce natural resources.

                                                                                                                                                             

                                                                                                                                                            The subindustry exposure score for non-water resource use is based on global resource scarcity and global supply concentration risk. Additionally, steel companies are highly water intensive, with most of the water used in the iron and steel industry used for cooling, protecting and cleaning equipment, dust control and steam generation. By 2030, the world is projected to face a 40% global water deficit, which could create more competition for and stringent regulations on water use. Climate change and the ensuing issue of water stress elevate companies' exposure to water risks, including the threats of volatile water prices and sudden rate increases for water. Steel companies in regions prone to droughts, aridification, water shortages and other extreme weather events may face business continuity issues, reduced secure access to water resources, community protests and adverse publicity; particularly if numerous stakeholders compete for the same water resources within the same region. Additionally, as climate change progresses and water stress worsens, new regulations may restrict water use, which could drive companies to implement contingency plans involving alternate water sources. Sustainalytics has increased the MEI exposure by one unit to 5. 



                                                                                                                                                             

                                                                                                                                                             

                                                                                                                                                              Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                                                                                                              Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Scope of Social Supplier Standards​S.2.1​15.00%12.5%-2.5%
                                                                                                                                                              Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Signatory to Responsible Business Alliance (RBA)​S.2.1.2​-7.5%-
                                                                                                                                                              Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Conflict Minerals Policy​S.2.1.3​15.00%10.0%-5.0%
                                                                                                                                                              Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​35.00%32.5%-2.5%
                                                                                                                                                              Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-2.5%-
                                                                                                                                                              Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-
                                                                                                                                                              Product Governance​MEI.18​Indicator Added​Product and Service Safety Programme​S.3.1.9.1​-10.0%-
                                                                                                                                                              Product Governance​MEI.18​Indicator Weight Change​Eco-Design​E.3.1.6​35.00%25.0%-10.0%
                                                                                                                                                              Product Governance​MEI.18​Indicator Weight Change​Product Stewardship Programmes​E.3.1.7​35.00%25.0%-10.0%
                                                                                                                                                              Product Governance​MEI.18​Indicator Added​Recycled Material Use​E.2.1.7​-10.0%-

                                                                                                                                                              Details

                                                                                                                                                              Working Hours Policy

                                                                                                                                                              This indicator assesses a company's commitment to a threshold of maximum hours that employees can work in a day or a week, and it is aligned with the International Labour Organization's (ILO) related conventions. The indicator is being added as part of “MEI. 13 Human Capital” to address the increasingly long working hours observed in this subindustry. Exceeding maximum working hours can have a direct impact on companies through fines and penalties, as well as high employee turnover rates. Assessing a company’s policy on maximum working hours provides an indication of its preparedness to mitigate related risks, and of its commitment to employee wellbeing.



                                                                                                                                                              Employee Training

                                                                                                                                                              This indicator assesses the average number of training days a company provides its workforce in a given fiscal year, to build specific knowledge and upgrade skills so that its employees can improve their performance and excel in their roles. The indicator is being added as part of "MEI. 13 Human Capital" to address the increasing need of companies to have skilled employees that require continuous up-skilling. This trend has been observed throughout the Technology, Media and Telecommunication industries, with varying degrees of intensity.

                                                                                                                                                               

                                                                                                                                                               

                                                                                                                                                              Recycled Material Use 

                                                                                                                                                              This indicator is typically applied under the Material ESG Issue "Resource Use". However, "Resource Use" is not activated for this subindustry although it is becoming a very important indicator of sustainability for tech companies, many of which are trying to reduce their environmental impact and appeal to consumers seeking products with a lower environmental footprint. Technology companies see recycled materials and the circular economy as a way to lower emissions and tap a supply of finite materials. Old electronics contain many valuable materials which often go to waste. This can be a huge opportunity for companies.

                                                                                                                                                                Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                                Data Privacy and Security​MEI.6​Change in MEI Exposure Score​--7​8​1​
                                                                                                                                                                Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​Previous weight 45.00%New weight 40.0%Weight change -5.0%
                                                                                                                                                                Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-
                                                                                                                                                                Human Capital​MEI.13​Indicator Weight Change​Human Capital Development​S.1.5.2​Previous weight 40.00%New weight 35.0%Weight change -5.0%
                                                                                                                                                                Human Capital​MEI.13​Indicator Added​Employee Training​S.1.6.1​-5.0%-
                                                                                                                                                                Human Capital​MEI.13​Indicator Added​Employees - Human Rights​EV.47​-Event Indicator-

                                                                                                                                                                Details

                                                                                                                                                                 
                                                                                                                                                                Data Privacy and Security

                                                                                                                                                                Companies in the Telecommunication Services subindustry provide communications and high-density data transmission services, such as high-speed Internet access, telephony and premium TV. Telecommunication Services companies collect, transmit and process high volumes of sensitive customer data. These companies have a high risk of cyberattacks, since they collect data on customers' behavior across both wired and wireless products, and are expected to become more involved in predictive analytics based on customer data. Additionally, telecom is considered to be backbone critical infrastructure, an industry seen to form a single point of failure in an economy. This increases the value of this industry to hackers as well and attracts additional scrutiny from governments. Telecom regulators can conduct investigations and allocate fines in the tens of millions of dollars due to data breaches or customer complaints.

                                                                                                                                                                 

                                                                                                                                                                Telecom companies are also becoming more exposed to data privacy concerns related to data transfers, as data is increasingly processed and stored across national borders. Traditionally, different jurisdictions have maintained their own legal requirements for data privacy; however, there is increasingly more coordination on data privacy among regulators in the EU, the US and Asia, with a trend toward increasing consumer data privacy protections. The EU General Data Protection Regulation of 2016 applies to all global companies that handle EU data; this regulation can lead to fines of up to EUR20 million, or 4% of annual global turnover, in cases involving privacy or security infractions. Multinational telecoms are now challenged to comply with changing privacy laws and meet consumer privacy expectations, particularly in the requirement to obtain free and full consent from data subjects, as well as expanded data subjects' rights to allow for the deletion and/or transfer of personal data. In Asia, national regulation (South Korea, Japan) and a voluntary data privacy initiative, the APEC Privacy Framework, are also addressing data privacy issues. The consideration of these factors indicates that the current exposure score (7) underestimates the risks related to data privacy and security for Telecommunication Services companies, prompting us to increase it by one point, to a new exposure score of 8.

                                                                                                                                                                 

                                                                                                                                                                 
                                                                                                                                                                 
                                                                                                                                                                Social Supplier Certification​

                                                                                                                                                                This indicator has been added to the Telecommunication Services subindustry to keep it in line with other technology, media and telecommunication subindustries; but also given many companies disclose either WRAP (Worldwide Responsible Accredited Production) or VAP (Validated Assessment Program) certification, which indicates they see this as relevant to their business models. 

                                                                                                                                                                 

                                                                                                                                                                 


                                                                                                                                                                Employee Training

                                                                                                                                                                This indicator assesses the average number of training days a company provides its workforce in a given fiscal year, to build specific knowledge and upgrade skills so that its employees can improve their performance and excel in their roles. The indicator is being activated (added) as part of "MEI. 13 Human Capital" to address the increasing need of companies to have skilled employees that require continuous up-skilling. This trend has been observed throughout the Technology, Media and Telecommunication industries, with varying degrees of intensity.

                                                                                                                                                                 

                                                                                                                                                                 

                                                                                                                                                                  Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious WeightNew WeightWeight Change
                                                                                                                                                                  Human Rights - Supply Chain​MEI.12.SC​Indicator Weight Change​Supply Chain Management​S.2.2.2.1​45.00%40.0%-5.0%
                                                                                                                                                                  Human Rights - Supply Chain​MEI.12.SC​Indicator Added​Social Supplier Certification​S.2.2.3​-5.0%-

                                                                                                                                                                   

                                                                                                                                                                  Details

                                                                                                                                                                  Supply Chain Management​

                                                                                                                                                                  Reducing this indicator weight to account for the addition of Supplier Certification.

                                                                                                                                                                   

                                                                                                                                                                  Social Supplier Certification​

                                                                                                                                                                  Supplier Certifications are becoming increasingly relevant and tracking company performance on this matter is relevant to risk mitigation.

                                                                                                                                                                    Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                                    Business Ethics​MEI.4​Change in MEI Exposure Score​--5​7​2​
                                                                                                                                                                    Product Governance​MEI.18​Change in MEI Exposure Score​--4​5​1​
                                                                                                                                                                    Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​Previous Weight -New Weight Event IndicatorWeight Change -
                                                                                                                                                                    Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                                                                                    Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-

                                                                                                                                                                    Details

                                                                                                                                                                    Business Ethics​

                                                                                                                                                                    The Tobacco subindustry is composed of a few key players following industry consolidation — Philip Morris, Altria, and British American Tobacco account for nearly 90% of the subindustry’s total market capitalization. Historically, companies within this subindustry have been involved in denying the negative health impacts of tobacco, as well as aggressive lobbying practices. More recently, with the introduction of new categories of tobacco products, there has been an uptick in cases related to intellectual property, as well as anti-competitive behavior in a scramble to carve out market share. In addition, events such as the US Food and Drug Administration's order to Juul Labs Inc. to stop selling and distributing vaping devices and pods in the US illustrate the high potential for increased regulation of smoke-free products, which further increases the risk of ethical misconduct in the subindustry. To fully capture these developments, we are increasing the Tobacco subindustry's exposure to Business Ethics from 5 to 7. 

                                                                                                                                                                     

                                                                                                                                                                    Product Governance

                                                                                                                                                                    Tobacco companies are switching to new product categories to deliver nicotine to their clients while circumventing existing strict regulation related to more traditional tobacco categories like cigarettes. However, the emergence of novel products such as electronic nicotine delivery systems, also known as e-cigarettes, and heated tobacco products have raised questions regarding misleading marketing practices and advertising restrictions. These new product categories are likely to face a high degree of regulation and scrutiny in relation to product safety and responsible marketing practices, therefore increasing risk related to Product Governance issues for certain constituents of this subindustry. As a result, we are increasing the exposure score by 1 unit for a total SI exposure score of 5 for the subindustry to better reflect risks associated with these new product categories. 

                                                                                                                                                                     

                                                                                                                                                                    Community Relations, Society - Human Rights, Community Relations - SC
                                                                                                                                                                    Issues related to community relations or human rights speak to the way in which a company conducts its business. Over the past few years, we have seen companies face increased scrutiny when it comes to the impact of their business on communities and society at large. We have therefore added these event indicators under Business Ethics to capture these risks. 
                                                                                                                                                                      Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                                      E&S Impact of Products and Services​MEI.9​MEI Added​--0​2​2​
                                                                                                                                                                      E&S Impact of Products and Services​MEI.9​Indicator Added 
                                                                                                                                                                      Fair Trade Products

                                                                                                                                                                      S.2.2.4

                                                                                                                                                                      Previous WeightNew Weight 17.5%Weight Change -
                                                                                                                                                                      E&S Impact of Products and Services​MEI.9​Indicator Added 
                                                                                                                                                                      Sustainable Products & Services

                                                                                                                                                                      E.3.1.1

                                                                                                                                                                      -32.5%-
                                                                                                                                                                      E&S Impact of Products and Services​MEI.9​Indicator Added 
                                                                                                                                                                      Eco-Design

                                                                                                                                                                      E.3.1.6

                                                                                                                                                                      -40.0%-
                                                                                                                                                                      E&S Impact of Products and Services​MEI.9​Indicator Added 
                                                                                                                                                                      Recycled Material Use

                                                                                                                                                                      E.2.1.7

                                                                                                                                                                      -10.0%-
                                                                                                                                                                      E&S Impact of Products and Services​MEI.9​Indicator Added 
                                                                                                                                                                      Environmental Impact of Products

                                                                                                                                                                      EV.17

                                                                                                                                                                      -Event Indicator-
                                                                                                                                                                      E&S Impact of Products and Services​MEI.9​Indicator Added 
                                                                                                                                                                      Social Impact of Products

                                                                                                                                                                      EV.32

                                                                                                                                                                      -Event Indicator-
                                                                                                                                                                      Business Ethics​MEI.4​Indicator Added​Community Relations​EV.10​-Event Indicator-
                                                                                                                                                                      Business Ethics​MEI.4​Indicator Added​Society - Human Rights​EV.48​-Event Indicator-
                                                                                                                                                                      Business Ethics​MEI.4​Indicator Added​Community Relations - SC​EV.38​-Event Indicator-

                                                                                                                                                                      Details

                                                                                                                                                                      Environmental and social Impact of Products and Services​

                                                                                                                                                                      Companies in the Toys and Sporting Goods subindustry manufacture a variety of leisure products and equipment, ranging from musical instruments to children's toys and sporting goods. Evolving regulation and consumer awareness regarding the environmental and social impact of products drives increasing scrutiny and potential regulatory or reputational risk for companies. Those issues are mainly related to consumer pressure for companies to shift their offering to more environmentally and socially responsible products, including the use of leather substitutes, recycled fibres and organic cotton. In addition, in light of the rising concerns related to plastic products, toy manufacturers are also facing increased reputational and regulatory risks over the environmental footprint of their products. These factors have prompted us to add the Environmental and Social Impact of Products and Services as a material issue for Toys and Sporting Goods companies. To ensure consistency with the Footwear and Luxury Apparel subindustries, which are similar in terms of risk profile, we believe an exposure score of 2 is appropriate.

                                                                                                                                                                       

                                                                                                                                                                       

                                                                                                                                                                       

                                                                                                                                                                        Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                                        Carbon - Own Operations​MEI.8​Change in MEI Exposure Score​--5​4​-1​
                                                                                                                                                                        Business Ethics​MEI.4​MEI Added​--0​3​3​
                                                                                                                                                                        Business Ethics​MEI.4​Indicator Added
                                                                                                                                                                        Community Relations

                                                                                                                                                                        EV.10

                                                                                                                                                                        Previous WeightNew Weight Event IndicatorWeight Change -
                                                                                                                                                                        Business Ethics​MEI.4​Indicator Added
                                                                                                                                                                        Society - Human Rights

                                                                                                                                                                        EV.48

                                                                                                                                                                        -Event Indicator-
                                                                                                                                                                        Business Ethics​MEI.4​Indicator Added
                                                                                                                                                                        Community Relations - SC

                                                                                                                                                                        EV.38

                                                                                                                                                                        -Event Indicator-

                                                                                                                                                                        Details

                                                                                                                                                                         

                                                                                                                                                                        Business Ethics 

                                                                                                                                                                        The Travel, Lodging and Amusement subindustry comprises predominantly owners and operators of hotels, resorts, cruise ships and any other establishments that offer lodging and hospitality services. It also includes travel agencies and tour operators. In the past couple of years, some companies have become involved in events or controversies related to business ethics and anti-competitive practices. Presently, approximately 39% of subindustry constituents (within Sustainalytics' universe), including prominent companies such as Accor, Hilton, Marriot, TUI, Hyatt and InterContinental Hotels, are involved in incidents such as mortgage foreclosure due to loan defaults, antitrust matters, issues involving hotel bankruptcy proceedings, kickbacks for vendors, bribery schemes, lawsuits for unfinished buildings, document fraud, reporting issues, concerns over human rights due diligence (related to hotel construction workers), building without a license, corporate espionage and over pricing. This has prompted Sustainalytics to activate Business Ethics as a Material ESG Issue (MEI) for the subindustry. 

                                                                                                                                                                         
                                                                                                                                                                        Carbon - Own Operations​

                                                                                                                                                                        Subindustry constituents require large amounts of energy for their (recreation) facilities and buildings. Consequently, it is increasingly important for companies in the industry to manage overall energy efficiency as well as access to alternative energy sources. Furthermore, the broad political momentum to reign in global GHG emissions increases company exposure to regulatory risks. However, industries related to commercial services have lower GHG emissions compared to transportation, electricity and manufacturing-based industries as confirmed by the EPA and EU. Therefore, Sustainalytics has decreased the exposure score for the Travel, Lodging and Amusement subindustry from 5 to 4. This reflects lower exposure to this material ESG issue (MEI) compared with more carbon-intensive subindustries, such as Trucking and Shipping. The score change has no impact on the medium subindustry exposure category. While certain subindustry constituents have business models or operations that are more carbon-intensive, which could elevate exposure, we will continue to capture these using a beta overlay, rather than setting the baseline too high. In the case of cruise ships, the highest emitters of CO2 in this subindustry, a beta rule will be applied to align MEI exposure with perceived risk. 

                                                                                                                                                                         

                                                                                                                                                                         



                                                                                                                                                                         

                                                                                                                                                                          Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                                          Human Capital​MEI.13​Change in MEI Exposure Score​--5​6​1​
                                                                                                                                                                          Carbon - Own Operations​MEI.8​Indicator Weight Change​Green Logistics Programmes​E.1.7.1​Previous weight 10.00%New weight 25.0%Weight change 15.0%
                                                                                                                                                                          Carbon - Own Operations​MEI.8​Indicator Weight Change​Carbon Intensity​E.1.9​12.50%7.5%-5.0%
                                                                                                                                                                          Carbon - Own Operations​MEI.8​Indicator Weight Change​Carbon Intensity Trend​E.1.10​15.00%10.0%-5.0%
                                                                                                                                                                          Carbon - Own Operations​MEI.8​Indicator Weight Change​Renewable Energy Use​E.1.11​10.00%5.0%-5.0%


                                                                                                                                                                          Details

                                                                                                                                                                          Human Capital

                                                                                                                                                                          Companies in the Trucking subindustry transport goods and provide passenger land-transportation services including, but not limited to, short-term rental or extended-term leasing of motor vehicles, truck tractors, semitrailers, and utility trailers. They are also involved in transporting (by road) general commodities using motor vehicles for local and long-distance hauling. Over the past couple of years, the pandemic and the supply chain crisis combined have led to a truck driver shortage, causing major bottleneck issues in delivery. According to a recent Transport Intelligence study, the shortage of commercial vehicle drivers in Europe has reached 400,000 drivers in August 2021. The International Road Transport Union (IRU) states that a shortage of professional drivers has arisen due to the impact of the COVID-19 pandemic restrictions as well as due to the difficult working conditions and difficulties in attracting women and young people to the profession (the average age of a trucker in Europe is around 45 years). The situation is most acute in countries such as Poland, the UK and Germany. The shortage of truckers has already led to a supply crisis in the UK, where supplies of fuel to petrol stations, food to supermarkets and parts to factories have been disrupted.

                                                                                                                                                                          As of 2021, the US has also experienced a shortage of more than 80,000 truck drivers, according to an estimate from the American Trucking Associations. The shortage is due to a combination of factors including the pandemic, demographic shifts (57% of drivers in the US are over 45 years old), and the prohibition of 50,000 drivers by the US Federal Motor Carrier Safety Administration's (FMCSA) based on its Drug and Alcohol Clearinghouse database, which was launched in 2020. To meet the surging delivery demand prompted by the COVID-19 pandemic, trucking companies need more capacity and drivers, exposing companies in the coming years to a shortage of drivers. In addition, their ability to recruit and train new drivers while retaining existing employees will be essential in future. These trends bring trucking companies toward the high side of the spectrum in terms of Human Capital-related risks. We have therefore increased the exposure score for the Subindustry to 6 to better reflect the risks companies face in terms of hiring, development and retention of employees. 

                                                                                                                                                                           

                                                                                                                                                                            Material ESG Issue (MEI)MEI CodeUpdate Indicator NameIndicator CodePrevious Exposure ScoreNew Exposure ScoreScore Change
                                                                                                                                                                            Human Capital​MEI.13​Change in MEI Exposure Score​--4​2​-2​
                                                                                                                                                                            Carbon - Own OperationsMEI.8Beta Indicator AddedCarbon Solutions OfferingEA.P. 9---

                                                                                                                                                                             

                                                                                                                                                                            Details

                                                                                                                                                                            Human Capital

                                                                                                                                                                            Companies in the Water Utilities subindustry purchase and redistribute water to the end-consumer and operate infrastructure such as sewage treatment facilities, liquid waste treatment plants, water treatment plant and water testing facilities. Material risk exposure to Human Capital is driven primarily by two risk drivers: 

                                                                                                                                                                            1. Labour intensity: the amount of human capital a subindustry has at its disposal on average.

                                                                                                                                                                            2. Labour skill: the level of average skill or training required by employees within a subindustry.

                                                                                                                                                                             

                                                                                                                                                                            Sustainalytics' research suggests that labour- and skill- intensive subindustries face added risk to their human capital consideration from both higher implicit expenses such as wage and benefits and implicit costs of heightened employee turnover. We have reassessed exposure to each of these factors based on up-to-date metrics such as revenues per employee and labor costs per employee. The findings of our research indicate that the average degree of labour skill and intensity required by Water Utilities companies is lower than other utilities subindustries. Unlike the latter, Water Utilities do not face the same challenges around attracting and retaining talent with knowledge of technology, digitization and data analytic; Water Utilities do not face fundamental transformational challenges in the way electric, gas and distribution companies do. This has prompted us to decrease the subindustry exposure score to 2, one point below the other utilities companies, to better reflect the risk that Water Utilities companies face in terms of hiring, development and retention of employees.