Methodology

Ethos aggregates publicly-available information related to the impact of companies and funds, organizing it to help you make decisions that align with the causes you care about. This is an overview of our ratings methodology. For more information, contact us at support@ethosESG.com.

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.

You can 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 sub-industry (determined through publicly-available industry classification systems and company self-reported peers). We indicate when we use peer-average data.

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).

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 care about.

To do this we use a simple, 3-5 minute Impact Assessment. In this assessment you indicate which causes are most important to you, using 1-7 scales.

We then use your input to weight ratings of companies, investments and your portfolio. Causes you say are more important to you receive greater weight, and vice versa."

Disclosures

© 2020 Ethos Impact Inc. All Rights Reserved. The information, data, analysis and opinions contained in this report include the confidential and proprietary information of Ethos; may include or be derived from account information provided by your financial representative which cannot be verified by Ethos; does not constitute investment advice offered by Ethos; are provided solely for informational purposes and do not constitute an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Except as otherwise provided by law, Ethos shall not be responsible for any trading decisions, damages or other losses resulting from the use of this information, data, analysis or opinion. This report is supplemental educational or sales literature.

This report should not be relied on as a substitute for official account statements.

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information quoted.

The model portfolio results presented in this report are based on simulated investments, assuming that the holdings are purchased on the first day of the period indicated. The simulation is based on end-of-day prices and does not consider distribution income or capital gains, trading costs, tax implications, or other factors that may affect actual portfolio performance. If considered, such factors may reduce portfolio returns.

Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.

The model portfolio results in this report are intended as informational only. Ethos makes a best effort to ensure accuracy of end-of-day prices used to calculate portfolio returns, but makes no representation as to their accuracy. Data that Ethos uses is last available end-of-day and is only as good as the sources we use.

Investors should consider the investment objectives, risks, charges and expenses of any investment company carefully before investing. The prospectus and, if available, the summary prospectus contain this and other important information about an investment company. Request a prospectus from the offering institution or your financial representative. Read carefully before investing.

Investments in this report are subject to market risk, including the possible loss of principal. It should be assumed that investments listed in this report are not FDIC insured. The value of the portfolio will fluctuate with the value of the underlying securities. Investors should consider an investment's investment objective, risks, charges, and expenses carefully before investing. In the case of mutual funds and ETFs (Exchange Traded Funds) a prospectus is available which contains this and other important information and should be read carefully before investing. Diversification does not ensure a profit and may not protect against loss in declining markets.

In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility as do investments that do not have significant volume; international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations; emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume; bonds and bond funds will decrease in value as interest rates rise and are subject to credit risk, which refers to the possibility that the debt issuers may not be able to make principal and interest payments or may have their debt downgraded by ratings agencies.

Alternative securities (e.g. partnerships, limited liability companies, real estate investment trusts, hedge funds, and managed futures which are not listed on national exchanges) are generally illiquid; no formal trading market exists for these securities; and their values will be different than the purchase price or values shown on this report. Therefore, the estimated values shown herein may not necessarily be realized upon sale of the securities. Prices shown should only be used as a general guide to portfolio value.

An investment in 'money market' is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 'Money market' funds seek to preserve the value of your investment at $1.00 per share, but, it is possible to lose money by investing in 'money market.'

This portfolio may contain investments requiring the delivery of a prospectus. See fund prospectus for details.

Mutual funds may contain sales charges, expenses, management fees, and breakpoint discounts (quantity discounts) which vary from mutual fund to mutual fund. Therefore, you should discuss these issues with your financial representative and review each mutual fund's prospectus and statement of additional information to get the specific information regarding the charges and breakpoint discounts associated with a particular mutual fund. Please see the mutual fund prospectus and statement of additional information for details about sales charges, expenses, management fees, discount programs (rights of accumulation, letter of intent, breakpoint discounts, etc). A mutual fund's total expense ratio is shown as provided by a third party vendor and may or may not contain fee waivers or expense reimbursements that may be in effect for the fund. Please refer to the fee table in the fund's prospectus.

ETFs trade like a stock, and ETFs may trade for less than their net asset value. See prospectus for details.

Investing often generates tax consequences which are not incorporated in this report.

This report relies on mutual fund holdings collected by Ethos from SEC filings where available, ETF holdings collected from fund websites, and holdings data from other sources (such as fund annual reports) where otherwise not available. As a result, report information is only as accurate and timely as the available holdings data. In all cases there is a reporting delay. 

This report is to be used for illustration and discussion purposes only. Please review the underlying assumptions carefully. Past performance is no guarantee of future results and principal values fluctuate with changing market conditions.

This report is presented as a courtesy by Dana Investment Advisors, as another resource in managing your investments. Ethos uses proprietary calculations based on information obtained from sources believed to be reliable. Their report is for reference purposes only and no representation is made as to its accuracy. Please read the report's text and disclosures to understand the scope of the information provided. Contact Dana Investment Advisors to discuss your report in further detail.