Byond Methodology

Byond Financials’ ESG Scores assess how an entity manages risks and opportunities related to environmental, social and governance factors that may affect its finances. We also examine the quality and completeness of information publicly disclosed by these companies, as well as their awareness of emerging but often overlooked ESG issues. These scores are based on quantitative performance-oriented indicators, as well as an assessment of the management programs and policies adopted. Developed using industry-specific methodologies and specific weighting schemes, ESG scores cover a broad range of sustainability topics considered financially relevant or of critical importance to stakeholders.

ESG Ratings are measured on a scale of 0 to 100, where 100 represents the maximum score. Using a structured methodology, we identify companies that stand out or lag behind in their sector, based on their exposure to these risks and their management compared to their competitors. Our ESG ratings range from leader (AAA, AA), to medium (A, BBB, BB) and laggard (B, CCC).

Byond Financials conducts an annual sustainability performance assessment in which all companies in the research universe are invited to participate. Byond Financials directly engages entities through an industry-specific questionnaire, to which participants submit in-depth data and supporting evidence – including internal documents, where available.
For companies that do not respond, our analysts complete the assessment questionnaire on their behalf using publicly available information. Entities submit their responses and supporting evidence. The data is assessed based on the most recent financial year and is securely stored in Byond Financials’ proprietary Sustainability Information Management System.

In addition to the annual assessment via the questionnaire, entities are continuously monitored with daily screening for controversies that could have a material and lasting impact on their reputation, stakeholder relationships, financial performance and/or business operations. The ESG Ratings and underlying data levels are updated weekly to reflect any changes that may result from this additional research process.

Data collected through the questionnaire undergoes thorough review and multiple phases of quality control to ensure its validity and accuracy. Reviews are conducted by specially trained and experienced analysts using predefined rule-based verification frameworks in an entirely isolated process from the rating. Verification includes cross-checking and corroborating responses with internal documents or regulatory filings, requesting that these documents be made public, and/or requesting third-party verification. Companies are contacted if submitted or publicly found information requires further clarification regarding potentially erroneous or incorrectly reported data.

Byond Financials penalizes companies with limited reporting scope when data does not cover all operations to ensure parity with full disclosures. Rule-based rating algorithms also reward companies with extra points for disclosing metrics independently verified by a third party. For qualitative topics such as corporate policies and management approaches, points are awarded based on the content and substance of the policies and procedures, not merely their existence.

The questionnaire is designed objectively. Responses to each question are scored between 0 and 100 points and translated into scores using predefined rating algorithms that vary depending on the complexity of the data and the intent behind each question. These predefined frameworks award points for transparency and entity performance on sustainability topics: Transparency and Disclosure Scoring: Points are awarded for the qualitative or quantitative information provided without normative evaluation of the values. Points may be awarded for any response given due to the company’s ability to provide the metric, indicating that the company actively monitors this aspect. Performance Scoring: Points are awarded for quantitative metrics, assessed based on the quality and substance of values in relation to a potentially maximum response. The initial goal of the scoring framework is generally transparency and disclosure, with points awarded to companies able to disclose relevant information. As data collection and reporting on these topics evolve, performance-based scoring is often introduced to capture a trend or measure a company’s performance relative to its peers. Weighting and Aggregation of Scores.

Once points are awarded for questions, they are progressively weighted and summed at the question, criterion, and dimension levels to reach a final aggregated ESG score. Scores are also produced at each aggregation level (question, criterion, and dimension).

Once points are assigned to questions, they are progressively weighted and added together across question, criterion and dimension levels to reach a final aggregate score, the ESG score. Scores are also produced at each level of aggregation (question, criterion and dimension).

Media and stakeholder analysis is an integral part of the entity sustainability assessment and allows Byond Financials to continuously monitor the sustainability performance of entities by assessing current controversies with potentially negative reputational or financial impacts. The main objective of the maintenance process is to gain insight into a company’s ability to mitigate significant financial and/or reputational risks, as well as stakeholder and environmental impacts, while protecting shareholder value.

Controversies are therefore monitored daily using media and stakeholder stories compiled by our analysts. These stories vary widely, covering issues such as crime, corruption, fraud, illegal business practices, human rights violations, labor disputes and workplace safety, catastrophic accidents or environmental violations, for example. Once an incident is reported by a third party, a controversy case is triggered. During investigations, a team of expert analysts determines the relevance, magnitude, and potential impact of a case on an entity’s existing questionnaire responses. In addition to the severity of the controversy, the remedial actions taken by the entity to resolve the issue, minimize negative impacts, and mitigate recurrences are also considered.