Methodologies

Corporate Issuers ESG Analysis

The MainStreet ESG Score of corporate issuers is determined by its performance on material ESG indicators which MainStreet groups into 4 key parameters under each pillar of ESG, for a total of 12 key categories. MainStreet has chosen these 12 key categories based on its expertise in ESG assessment and based on guidance from leading authorities such as the Sustainability Accounting Standards Board. Below, we have outlined the key categories which we use to build our ESG assessment of corporate issuers .

Our Country ESG Model aims to evaluate a country’s exposure to and performance in respect of material ESG issues. The philosophy of the model is that a country which properly manages these ESG issues should enjoy long-term prosperity and sustainable economic development. The model is based on the premises that a sustainable country is one which:

-Reduces its impact on nature, favouring cleaner sources of energy and preserving natural assets such as forests and groundwater
-Provides adequate essential services such as education or internet access, ensures a sustainable pace of population growth and reduces inequalities
-Adopts a robust political system subject to the rule of law and fosters a business-friendly environment, and
-Enables long term prosperity of its citizens and reduces geopolitical risk through a strong macroeconomic performance and energy security

The four premises above form the four pillars of the Country ESG Model. Under each pillar there are categories which group similar ESG indicators together. For example, under the Environmental pillar there is an Emissions category which includes indicators related to CO2 intensity and greenhouse gas emissions.

Starting from approximately 400 indicators, 88 have been selected due to their robustness, availability and relevance of data and ESG issues. Examples of statistics databases from which the indicators are sourced include: World Bank Development Indicators, Ease of Doing Business Report, UN Development Index, World Health Organisation, Standardized World Income Inequality Database, Social Progress Index, Freedom in the World Report, CIA World Factbook.

Each of the indicators has a weight contributing to a category and finally to its respective pillar. Each pillar contributes to the overall Country ESG Score which is calculated as the weighted average of the pillar scores. The Environmental, Social Conditions, and Governance and Politics pillars are assigned a weight of 30% each because they are core ESG issues and then the Macroeconomics pillar has a weight of 10%. 

MainStreet implements a structured process using a robust proprietary methodology to evaluate a fund’s sustainability level. Our methodology is unique because involves a 3-pillar holistic assessment which considers 1) the overall asset management firm, 2) the fund’s strategy and 3) the single holdings in the fund. This enhanced methodology distinguishes MainStreet from the major ESG providers which tend to focus only on the holdings or the strategy label. The sustainability rating ranges from 1 to 5 with 5 being the highest score. Above all, our approach is designed to eliminate the risk of greenwashing in investment products which can cause significant reputational damage.

MainStreet has developed a score card which assists its sustainability evaluation of third-party funds. MSP has identified 100+ material indicators which provide a comprehensive assessment of a fund’s ESG performance. Most importantly, each indicator has five pre-determined answers, one of which must be selected by the analyst conducting the due diligence. This restriction ensures that different funds are scored consistently by different analysts leaving little room for subjective judgment. A qualitative review is then held at the team level and every ESG fund score-card is subject to the “4-eyes principle” in addition to annual analyst coverage rotation to maintain the maximum possible level of objectivity.