What is S-Ray®?
S-Ray® is Arabesque’s unique tool that allows anyone to monitor the sustainability performance of approximately 7,000 of the world’s largest corporations. Smart and simple to use, Arabesque S-Ray® looks beneath a company’s surface by assessing its extra-financial performance, helping us to better understand its societal and environmental impact.
Leveraging big data through the power of machine learning, Arabesque S-Ray® systematically combines over 250 environmental, social and governance (ESG) metrics with news signals from over 50,000 sources across 20 languages.
As sustainability is a multi-faceted concept, S-Ray® offers a variety of scores each with their own focus and purpose. There are currently three components of S-Ray®:
- GC Score
- ESG Score
- Preferences Filter
What is the difference between S-Ray® and other sustainability scores and rankings?
Arabesque S-Ray® is different from other sustainability scores in many ways:
Arabesque S-Ray® is a technology-driven platform that leverages the power of machine learning to systematically combine a diverse set of data sources, rather than relying on one set of human judgements. The algorithms driving Arabesque S-Ray® are designed to become more comprehensive over time as new and different types of data sources become available.
Multiple Sustainability Lens:
To reflect the multi-faceted nature of corporate sustainability, Arabesque S-Ray® provides three distinct sustainability measurements, instead of one simple total score. The GC Score primarily looks at how a company behaves in relation to the principles of the UN Global Compact. The ESG Score provides information on a company’s ability to financially outperform in the long run. The Preferences Filter allows users to assess the business involvements of a company, and to find out how it aligns with their personal values.
Developed for Arabesque’s investment process, S-Ray® provides a unique investor perspective and a deep understanding of materiality.
S-Ray®’s quantitative methodology allows for the constant addition of inputs for greater coverage, more comprehensive scoring, and competitive pricing.
S-Ray® has been developed in collaboration with leading universities and a world-renowned board.
Where does the data come from?
While we do not disclose the actual underlying sources, we organize all data in two main groups:
- Report-based long-term sustainability assessments
- Across different rating providers, Arabesque S-Ray® maps, compiles and aggregates raw data on over 250 sustainability metrics.
- Differences between analysts are actively managed and interpreted over time, resulting in consensus analyst scores per underlying topic.
- These data points form a good starting point to understand a large variety of sustainability issues from an analyst perspective but are typically slow to reflect changes.
- News-based short-term sustainability signals
- Further to the latest analyst ratings, Arabesque S-Ray® actively tracks sustainability-related company news from over 50,000 public sources across 20 languages.
- All relevant news is organized per company and topic and is assigned a news value – which is a function of importance, influence and relative novelty in comparison to existing analyst views.
- These news signals allow for a timelier adjustment of Arabesque S-Ray® scores, on top of the analyst-based long-term assessments
- NGO – based activity
- Alongside the news-based controversies, S-Ray® now also tracks NGO campaign activity across over 400 sustainability issues.
What are the sources S-Ray® scrapes data from?
- Report-based metrics (over 250 reported metrics from sustainability and integrated reports)
- Natural language processing to scan over 50,000 public news sources across 20 languages daily for sustainability-related controversies
- Tracking of NGO campaign activity across over 400 sustainability features (positive or negative)
- Example: IPEN stories from women working at Samsung factories in Vietnam, leading to negative score in Occupational health & safety
How does Arabesque S-Ray® ensure input data quality?
Arabesque S-Ray® has been developed with data quality as one of its most important objectives. As a quantitative asset manager, Arabesque has built a proprietary data technology, which helps overcome data integrity issues when combining different sustainability data sources. The combination of raw analyst data across multiple rating providers also helps avoid over-reliance on any one individual human judgement. The automatic calculation of news signals in Arabesque S-Ray® further augments analyst views and is designed to avoid double counting.
How does S-Ray® account for gaps or inconsistencies in data?
If there is insufficient data, then a company is not scored. To account for gaps and inconsistencies:
- The data is cleaned daily
- All inputs are subjected to a set of data quality checks (i.e. false outlier detection), and poor-quality data gets discarded
- Space of infrequent time series are imputed and re-sampled to accommodate daily calculations
What is the GC Score?
The GC Score provides a normative assessment of companies based on the four core principles of the United Nations Global Compact (GC): human rights, labour rights, the environment and anti-corruption. With more than 12,000 corporate signatories from over 160 countries, the Global Compact is the world’s largest corporate sustainability initiative. It calls on companies and stakeholders to conduct business responsibly, and to pursue opportunities that advance sustainable development goals. With Arabesque S-Ray®, these principles are quantified for the first time, with the potential to inspire more companies to take shared responsibility and join the Global Compact in its commitment to achieve a sustainable and inclusive global economy.
What is the ESG Score?
While the GC Score builds from a normative framework to approximate reputational risk, the ESG Score is all about identifying companies that are better positioned to outperform over the long term. To understand the potential for long-term performance, the S-Ray® methodology considers the principle of financial materiality. That is, when computing the ESG Score of a company the algorithm will only use information that significantly helps explain future risk-adjusted performance. Materiality is applied by more heavily weighting features with higher materiality, and weights are rebalanced on a rolling quarterly basis.
What is the difference between the GC Score and the ESG Score?
While the GC Score builds from a normative framework to approximate reputational risk, the ESG Score identifies companies that are better positioned to outperform over the long term. To understand the potential for long-term performance, the S-Ray® methodology considers the principle of financial materiality. That is, when computing the ESG Score of a company, the algorithm will only use information that significantly helps explain future risk-adjusted performance. Materiality is applied by more heavily weighting features with higher materiality, and weights are rebalanced on a rolling quarterly basis.
Together, the GC Score and ESG Score provide a powerful and holistic understanding of a company’s sustainability profile.
Note that this also means that a company’s environment sub-scores of the GC and ESG Score will not be identical. The ESG-E score considers the financial materiality of Features (i.e. when computing the ESG-E score of a company, the algorithm will only consider that information that significantly helps explain future risk-adjusted performance). The GC-E score does not consider financial materiality, but rather looks at how companies treat their environment from a normative perspective.
Can a company have a low GC Score and a high ESG Score or vice versa?
Although the two scores are correlated, companies may have significantly different values for its GC and ESG Scores. When companies perform well on financially immaterial topics, they will increase their GC Score to a larger extent than they will increase their ESG Score. Similarly, performing poorly on immaterial topics will negatively affect their ESG Score less than it will negatively affect their GC Score.
Should I give more consideration to the ESG or the GC Score?
Both scores provide different perspectives on a company’s sustainability perspective, and the score that is to be considered more important depends entirely on the user’s preference and view. While the GC Score aims to approximate reputational risk, the ESG Score is all about identifying companies that are better positioned to outperform over the long term.
What is the Preferences Filter and how does it determine a company’s business involvements?
The Preferences Filter is a collection of binary scores that allows the user to check the involvement of companies in controversial activities, therefore being able to avoid engaging with companies that do not align with personal values and preferences. The Preferences Filter looks at revenue streams and will flag a company as involved in an activity when its annual revenue stream from that activity exceeds 5%. Current available filters include: Adult Entertainment, Alcohol, Defence, Fossil Fuel, Gambling, GMO, Nuclear, Pork, Stem Cells, Tobacco and Weapons.
Note that the Preferences Filter flags are only aimed at allowing users to compare a company’s activities with their personal values. The flags do not influence the GC or ESG Score.
What is the relation between the Preferences Filter and other S-Ray® scores?
Is it bad to be flagged by the Preferences Filter?
How are the scores calculated?
The S-Ray® methodology is built on 3 layers. First, through the Input Layer, data from various sources is collected and prepared. These inputs are then mapped into various Features representing distinct sustainability topics. Finally, the features are used in different ways to produce a range of S-Ray® scores.
What is the Input Layer?
This is the layer where raw data from different sources is ingested. While we do not disclose the actual underlying sources, we organise all data in three main groups at this level:
- Report-based metrics
- News-based controversies
- NGO-based activity.
After rigorous data quality checks on the input layer and scaling and normalization of data across various sources, the cleaned inputs are further organized and labelled according to an internal taxonomy, and each input is mapped to its most appropriate feature.
What is the Feature Layer?
A major challenge with data from the Input Layer is that significant correlation and overlap can be found between inputs. The Feature Layer structures the input data along 22 well-defined sustainability topics using dimensionality reduction techniques. These features server as the building blocks for calculating the top-level S-Ray® scores. In addition, S-Ray® also flags business involvement across 12 areas for the Preferences Filter.
Who can use S-Ray®?
How can corporations use S-Ray®?
Arabesque S-Ray® can help companies obtain a better understanding of how they are being publicly perceived, and thus gain insights into the effectiveness of their sustainability practices and strategies for brand management and valuation. Our Deep Dive service based on S-Ray® allows corporates to systematically manage ESG risks and identify the most important input factors to improve their S-Ray® scores. This in turn can serve as an important input into strategic decision making at board and executive level, whilst also indirectly having a positive impact on other ESG ratings. The following examples shed light on the various ways in which corporates can benefit from S-Ray® data:
Our Deep Dive service allows companies to see where their firm ranks within their sector and industry. By comparing the company’s historic and current ESG and GC Scores to its peers, companies benefit from seeing where they outperform and underperform, as well as where competitors stand. The ESG Score allows firms to evaluate whether they are positioned to outperform competitors in the long term, and the GC Score is used to approximate a company’s reputational risk.
In addition to benchmarking, through the use of a gap analysis, corporates can use S-Ray® data to see where they rank highest and lowest in comparison to their sector peers. By differentiating between each sustainability feature, this allows companies to see the break-down of data contributing to the score, thereby providing insight into which features should be focused on improving. For example, should a firm have a low governance score, the Deep Dive may indicate that the firm has the lowest number of women on the board in its peer group. Also, for each feature, through historical data, a company can assess which practices have the greatest impact on its scores. For example, if a company was in the top percentile for forensic accounting – a feature within the governance score – and this changed to the bottom percentile, the company can see the month in which this shift occurred and identify whether there were changes to its accounting practices that month.
Is this data correct?
Corporates have also used S-Ray® data to evaluate and confirm whether the existing ESG data about them is correct. As Arabesque S-Ray® aggregates data from multiple sources, should companies indicate that certain data is incorrect, the Arabesque S-Ray® team are able to go back to the data suppliers with the more accurate information. In addition to data from suppliers, companies can see when, where, and how often they were in the news, and from which news sources.
Supply chain transparency
Supply chain transparency is sought after by companies and consumers alike. S-Ray® has data on over 7,000 different companies, allowing corporations to be more aware of the sustainability performance of the supply chain firms they source from.
How can investors use S-Ray® data?
S-Ray® can empower investors to make better and more informed investment decisions while contributing to a more sustainable future. Clients of S-Ray® across the global investment market include State Street, Deutsche Bank, the Government Pension Fund of Japan, AP1 and Eagle Investment Services (BNY Mellon). Four examples of ways investors use S-Ray® are as follows:
Companies with a poor GC Score face increased reputational risk and the potential loss of their public license to operate. Likewise, low ESG scores indicate inferior performance, thereby allowing investors to take notice before the company is involved in a potential scandal. For example, Facebook, Volkswagen and Wells Fargo were screened out of Arabesque’s portfolio due to their low ESG scores. Through the daily update functions of S-Ray®, investors can manage risk in real time, rather than solely depend on annual ESG updates provided by analysts.
Companies underperforming in terms of their ESG Score are also less likely to display future financial outperformance. Using data from Arabesque S-Ray®, Pensions & Investments found that companies with high ESG scores outperform lower scoring peers. Significant involvement in activities that are not aligned with most investors’ personal values can further hinder companies from attracting capital. Arabesque S-Ray® enables more informed long-term investment decisions, aiming to shift capital from the bottom corporate performers to the top.
Compliance and Reporting
As ESG becomes increasingly mainstream, policies are being implemented that require institutional investors to disclose their approach to ESG investing. In Sweden for example, institutional investors are now required to disclose their approach to ESG. In the Netherlands, investors without an ESG policy must explain why one is not in place. And in France, in addition to an ESG policy, investors’ contribution to climate goals must also be disclosed. By using S-Ray®, investors can ensure that they comply with regulation requiring ESG integration and disclosure, as well objective, quantitative data to allow for clear ESG reporting.
Meet Demand for Values-Based Investing
With over 80% of millennials interested in sustainable investing, and an expected $24 trillion USD to be under control by millennials in 2020, demand for ESG products, strategies and integration is likely to continue to grow. In order to harness this growing market, investors using S-Ray® can appeal to this demographic. Additionally, by having the data for the varying ESG features, as well as preferences filters, investors can create bespoke ESG portfolios that focus on specific issues.
How can the media use S-Ray® data?
S-Ray® is a rich source of data for corporate news stories and analysis. Journalists around the world are now using S-Ray® to spot key trends and analyse data and examine corporate performance. For example, in 2018 the Philadelphia Inquirer ranked Philadelphia-based companies on diversity, governance, and transparency, whilst Fortune explored the ESG performance of S&P 500 companies through the lens of S-Ray®. Whether the data is used to shed light on a company scandal or, for example, detail an industry’s improvement in board diversity, the capabilities of S-Ray® as a source of corporate information are vast.
How can the public use S-Ray® data?
Anyone can access and explore S-Ray® scores via the free S-Ray® desktop platform. S-Ray® allows the everyday user to make sense of the huge amount of sustainability information in the marketplace through an aggregated and clear rating of companies. All stakeholders can use the information of S-Ray® and feel empowered to support the companies that align with their values, and to push those companies that are under-performing to make necessary changes. Alongside acting as a transparency tool, S-Ray® can also be used for research and policy making.
Given the broad integration of ESG into financial education, and the increasing number of sustainability-based degrees, S-Ray® is an invaluable tool for academic institutions and universities. Students can learn about the intersection between the private sector and sustainability-related issue through S-Ray® and use this information to recognise risks and opportunities in the ESG space. For example, S-Ray® could be used for business case studies, in which students make connections between business operations, market trends, and ESG scores.
Policymakers and governing bodies can also make use of S-Ray® data in order to make sense of how companies and industries are performing. This allows for the issues that may need additional focus to be highlighted. For example, a governmental energy department may be focusing all its resources on lowering carbon emissions, while the data indicates that the majority of energy companies’ in its region have relatively low carbon emissions for the sector. Rather, their low scores may be caused by a lack of biodiversity policies, thus leading the department to re-valuate the current regulation.
Can I access more detailed scores to understand a company’s performance?
In the public (and free) version of Arabesque S-Ray®, we only provide total GC and ESG Scores. Subscribers to S-Ray® can further access four GC sub-scores (i.e. human rights, labour rights, environment and anti-corruption), three ESG sub-scores (i.e. environment, social and governance) and the 22 feature scores
To obtain more information on an S-Ray® subscription, you can contact us via firstname.lastname@example.org
What companies are included in S-Ray®?
Currently, the S-Ray® universe consists of approximately 7,000 publicly listed companies in both developed and emerging markets. We do not limit our universe to certain regions, sectors, benchmarks, or any other specification. S-Ray® aims to eventually cover every single company in the world.