Corporate ESG Ratings
With 15 years of history, HIP’s Corporate ESG Ratings continue to add value for investors.
Intended to be an indicator for future risk, return potential, and net impact on society, our quantitative analysis of fundamentals systematically identifies the drivers of the 90% of market value that cannot be found on the balance sheet.
Our ratings are a powerful tool used by investors and money managers to know what they own and endorse companies prioritizing human, social and environmental solutions — while pursuing optimal risk adjusted returns.
HIP incorporates many data sources when building its ratings
HIP Corporate ESG Ratings seek to provide a holistic overview of the impact associated with a given company.
This is done by gathering quantitative data on three main areas:
Products & Services
We analyze and quantify the impact products & services have on the consumer, the human problem they solve, and the amount of revenue generated by providing products that are good for the customer but also for the environment as a whole.
We look at how the vision, strategy and KPIs of the company support the long term, comprehensive view of the company, customers, and society. We study and analyze which systems and processes the corporation has implemented for making decisions that include criteria for both improved financial performance and a better world.
We gather performance data on how the company measures the human, social, and environmental impacts associated with its day-to-day operations. Furthermore, we analyze how these impacts drive profit and shareholder value. At a more granular level, the operational outcomes are organized according to five conceptual impact pillars modeled after Maslow’s famous hierarchy of needs: Health, Wealth, Earth, Equality, and Trust. Each Impact Pillar is comprised of 4-6 metrics.
Corporate ratings are built upon 5 pillars
Metrics related to physical and mental health. When evaluated across employees, customers, and suppliers, they can be leading indicators of financial performance. The health and well-being of employees has a direct effect on their ability to perform at work. Studies show that employee satisfaction is linked with overall increased productivity. This can yield higher levels of top-line revenue, bottom-line profit, and thus, shareholder value.
Leading companies develop competitive compensation packages that attract and retain talent. HIP Investor evaluates companies based on how a firm provides for its employees’ savings and retirement, the level of employee pay relative to industry peers, and the CEO’s compensation relative to average pay of staff.
Companies focused on optimizing their use of resources can benefit from lower expenditures on raw materials while supporting the environment. They can earn tax savings from renewable energy investments and increase revenue from customers seeking more sustainable products; while enhancing the value and goodwill of the brand.
Diversity across an organization can spur more creative problem solving, leading to potential higher financial performance. We look for diversity at the Board level, on the executive teams, as well as at the general employee base.
Transparency and openness to investors, customers, and the media have shown to reduce risk of an equity investment. HIP Investor analyzes trust metrics by studying political lobbying, ongoing legal actions, third party certifications, and a firm’s willingness to disclose information desired by its investors.
Corporate Rating Data Collection Process
Our comprehensive corporate ESG data is secured and aggregated from multiple sources. This includes publicly available data sources, such as a corporation’s 10-K and 10-Q statements, annual reports, sustainability reports and company websites, which are sourced and collected by third parties and HIP. Certain data are also collected by the HIP team from public sources such as The American Customer Satisfaction Index (ACSI) and the Human Rights Campaign (HRC).
HIP updates its ratings monthly to include the most relevant metrics and capture companies with different reporting cycles. However, it can often take 6 to 9 months for companies to disclosure on impact, ESG and SRI metrics. HIP strives to utilize the most recently available data to provide the investor with the most up to date disclosures available.
What makes HIP different?
Drivers of Impact, Reduced Risk, & Return Potential
HIP is unique from other ESG providers in that uses a materiality lens, focusing on metrics that address both Impact & Profit. Investing in the education and well-being of employees, optimizing natural resources and building trust with society are likely to be positive returns on investment. Engaged employees, in combination with a great product or service, can yield recurring revenues and rich referrals. Efficient use of energy, land, water and other resources enhances operating margins and frequently avoids future price shocks. Higher revenues and lower costs can result from higher sustainability performance.
Our ratings can also help identify and manage future risk, with a strong focus on exposures connected to environmental, social and governance (ESG) factors. By analyzing HIP Ratings against Sharpe ratios (return-per unit-of-risk), we have found that higher HIP Ratings correlate with with better returns for the same amount of risk.