Ethos aggregates publicly-available information related to the impact of companies, brands and funds, organizing it to help you make decisions that align with the causes you or your clients care about.
Ratings on Ethos are different in a few ways:
- Transparent: we show you the data behind our ratings, so you know why and how a company, brand or fund is rated the way it is.
- Personalized: we help you pick the specific causes that are most important to you or your clients and give you tailored ratings for those causes.
- Nuanced: companies can have positive impact on some causes and poor impact on others -- we show you the distribution of company, brand and fund impact across 45 causes.
- Comprehensive: we assess impact based on business model and revenue generation (e.g., selling clean energy), internal operations (e.g., employee wages), and external involvement (e.g., community donations).
- Material: we consider which industries have the most impact on a cause (which are "material"). For example, we amplify mental health scores of social media companies up (if they score better than peers) or down (if they score worse than peers).
Learn more about our ratings process below.
1. Define metrics for each cause
To create ratings for each of the 45 causes on Ethos, we first define metrics that gauge impact performance.
For example, the Renewable Energy cause includes metrics such as green power used and clean energy revenue. Most causes on Ethos include 25-40 metrics.
Metrics include government fines, product recalls, public controversies, shareholder actions, employee reviews, management decisions, and more.
Ethos also creates metrics assessing how well a company's business model supports a cause. For example, an alternative energy or electric vehicle company may have received fines or been involved in a controversy, but we also give strong consideration to how its core business model addresses climate change.
See the metrics we use for each cause on cause profile pages.
2. Aggregate data from credible sources
For each metric, we pull in data from independent organizations, government agencies, company reports, and other publicly-available sources. In total we aggregate more than 2.2 million data points from 250+ sources.
We monitor for updated data and use the data to score companies and funds on each metric, at least once per month.
For example, we check if there is updated data on environmental fines from Violation Tracker, or data on climate-related shareholder actions from As You Sow.
When there is no data available for a company, we use the average of the company's peer group (determined through publicly-available industry classification systems and company self-reported peers). We indicate when we use peer-average data.
Ethos customers can find all the sources we use for each cause on cause profile pages.
3. Normalize data to 0-100 ratings
We then combine metric scores to create a 0-100 rating for each company and fund, for each of the 45 causes on Ethos.
We give an "A" grade to ratings with a score of 80-100, a "B" grade to ratings with a score of 60-80, and so on. Ratings are roughly normally distributed around a mean of 50.
To do this we assign weights to each metric associated with a cause (from step 1 above) and apply widely-used statistical methods (such as standard scores) to normalize ratings from 0-100.
We determine weights for each metric based on 1) relevancy to the cause, 2) credibility of the data source, and 3) reliability of the data, e.g., how consistently it is reported.
We also consider industry "materiality", i.e., we determine which industries have an outsized impact on a cause and amplify ratings of companies in those industries up (if they score better than peers) or down (if they score worse than peers):
Impact Materiality Map®
Materiality of industry relative to other industries, by cause. Darker indicates greater materiality.
|Climate Change||Gender Equality||Health and Well-Being||Inclusive Economies||Innovation||Life on Earth||Peace and Justice||Quality Education||Sustainable Resource Use||Water and Sanitation|
|Lumber and Wood|
|Metals & Mining|
|Consumer Goods||Apparel & Textiles|
|Automobiles & Parts|
|Consumer Discretionary Products|
|Oil & Gas|
|Food & Beverage||Beverages|
|Food & Beverage Retail|
|Healthcare Software & Services|
|Pharmaceuticals & Biotech|
|Industrials||Aerospace & Defense|
|Materials & Construction|
|Real Estate||Real Estate|
|Media & Entertainment|
|Tech and Comms||Semiconductors|
|Software & Services|
|Freight & Logistics|
For example, if an airline scores better than its peers on a climate-related cause, we increase the rating of that airline by a small factor, since airlines tend to have an outsized impact on climate-related causes. Conversely, if an airline scores worse than its peers on a climate-related cause, we decrease its rating by the same factor.
Industry materiality helps ensure that ratings reflect where you can get the most "bang for your buck" on impact. For example, a software company might have low direct greenhouse gas emissions, but this also means that changing its behavior will not move the needle as much on climate change.
Companies in energy-intensive industries like transportation, food production or utilities likely have greater direct greenhouse gas emissions, but these companies also have the potential for larger positive impact on climate change. Applying a materiality factor to these industries moves their score up (if they perform better than peers) or down (if they perform worse than peers).
For fund ratings, we normalize from 0-100 using both ratings of fund holdings and a score for shareholder advocacy, i.e., how well fund managers engage held companies on ESG issues. The weighted-average rating of fund holdings is 90% of a fund's rating and the shareholder advocacy score is 10%.
4. Personalize ratings
Every investor and consumer is different, so we tailor ratings and information to the specific causes you or your clients care about.
To do this we use a simple, 3-5 minute Impact Assessment. In this assessment you or your clients tell us which causes are most important to you, using 1-7 scales.
We then use your input to weight ratings of companies, brands, investments and your portfolio (or your clients' portfolios). Causes you say are more important to you receive greater weight, and vice versa.
Our approach differs from that of other ESG ratings agencies. Here's how our ratings compare to MSCI and Sustainalytics:
|35 ESG Key Issues||20 ESG Issues||45 Causes|
AAA, AA, A, BBB,BB, B, CCC
Negligible, Low, Medium,High, Severe risk
|A, B, C, D, F|