Breakout C: Normalization of ESG Metrics

BREAKOUT C: Normalization of ESG Metrics

Rapporteur: Ellen Abramowitz

Panelists:

  • Rina Kupferschmid-Rojas, UBS

Moderator

  • Riva Krut, Praxair

Learning How to Count: The Complexities for ESG Investors of Comparing Energy Efficiency and GHG Performance

  • ​D. Scott Showalter and Gilroy Zuckerman, North Carolina State University

Investor’s Guide to Analyzing Company Sustainability Performance

This breakout section asked for investors to begin to question the metrics by which ESG is measured. The presenters argued that the standard metrics and equations used by ESG certification services do not always accurately reflect the progress a company is making towards their ESG goals. The speakers advocated for investors to reach out to the companies themselves with questions, and take a critical look at the numbers as they were presented.

The speakers shared their views that sustainability metrics can be misleading, difficult to recreate the methodology, and thus are not a finalized issue. They suggested alternative ways to compute ESG metrics that would simplify calculations and normalize the data. The first topic discussed was about normalizing carbon emissions to a standard currency, adjusted for inflation. This would look at the intensity per unit produced, based on a standard metric and would reduce the appearance in fluctuations of data over time. The second topic presented was “flexible budgeting,” a way to measure performance relative to expectations. This would account for energy efficiency changes and improve additionality assessment.

The audience raised several questions. Some asked about the methodology, suggesting purchasing power parity as a currency metric. Others were interested in a cash flow analysis, using the described metrics. Still others questioned whether the audience was investors, or those that collect the data. The panel concluded that investor interest in metrics was most likely to drive companies to change their actions – whether that be in reporting or supply chain, and the discussion around metrics must continue.