Methodology for assigning ESG Ratings to Corporates

The Methodology presented is a short public version - Version as of September 2017

ESG rating represents the opinion of Rating-Agentur Expert RA GmbH on the environmental, social and governance strengths and weaknesses of a corporate.

The environmental, social, governance and total ESG ratings assigned by Rating-Agentur Expert RA GmbH are defined on the basis of allocating the company to one of 9 rating classes according to the following scale:

 

Rating
ESG
Rating
E
Rating
S
Rating
G
Rating
level
Score Rating Band
AAA[esg] AAA[e] AAA[s] AAA[g] Highest
level
89 - 100% A-rating band
The entity’s position is above average. Minor or no further actions are required, but the entity can benefit from any additional improvement or innovation.
AA[esg] AA[e] AA[s] AA[g] Very high
level
78 - 89%
A[esg] A[e] A[s] A[g] High
level
67 - 78%
BBB[esg] BBB[e] BBB[s] BBB[g] Moderately
high level
56 - 67% B-rating band
The entity’s position is average. The entity faces a bearable amount of risks, which can be mitigated with a reasonable number of further actions.
BB[esg] BB[e] BB[s] BB[g] Sufficient
level
44 - 56%
B[esg] B[e] B[s] B[g] Moderately
low level
33 - 44%
CCC[esg] CCC[e] CCC[s] CCC[g] Low

22 - 33%

C-rating band
The entity’s position is below average. Strong actions are required. The entity faces a significant amount of risks but there is a big room for improvement.
CC[esg] CC[e] CC[s] CC[g] Very low
level
11 - 22%
C[esg] C[e] C[s] C[g] Lowest
level
0 - 11%

 

 

 

 

 

 

 

 

 

OVERVIEW

RAEX-Europe has published the first ESG ranking of the largest companies of Russia. The results of the ranking were presented by Svetlana Grishankova, Managing director of Rating-Agentur Expert RA GmbH at the conference RAEX-600, which took place in Moscow on the 3rd of October 2018.

The Russian companies listed on international stock exchanges are the most widely represented in the TOP-10 ESG ranking. The leader of ESG ranking is oil company “Lukoil”. Also, the companies having highly developed social and corporate governance procedures, as well as modern practices of environmental risks mitigation, joined the leading positions in the ranking: MMK, Gazprom, Tatneft, ALROSA.

The “e-leaders” group (environmental section) was formed not only by the companies from the industries with low environmental impact, such as transport, logistic and electric power transmission, but also from the ecologically “unfriendly” sectors, such as oil, gas and chemical industries, where the modern technologies help to minimize the negative environmental impact.

The “social” leaders (social section) were mostly represented by the oil- and still industries companies with well-developed human capital and industrial safety development practices.

The companies included to the TOP-10 by the corporate governance efficiency are mostly public companies using the world best-practices of the corporate governance and having highly transparent financial reporting.

PRESENTATION

 

METHODOLOGY

The original universe of the companies for ESG ranking was formed by the TOP-50 RAEX-600 ranking (by total volume of revenues). We excluded the companies from the industries having a negligible environmental impact, such as retail, financial sector, telecom and holding companies. In addition, we excluded the subsidiaries and affiliates of the international companies, operating in Russia. Finally, only 30 companies were chosen for the assessment within the ESG Ranking.

The ESG ranking of the Russian companies was based on the assessment of the optimal set of selected indicators that show how the company affects the ecological and social environment, as well as degree of its exposure to the social and governance risks. The following indicators were used:

Environmental (as a ratio to total revenues)

  • Water use (million cubic meters)
  • Waste generated (th. tonnes)
  • Total emissions (th. tonnes)

Social

  • Social expenditure and Human capital investments per one Employee (th. RUB)
  • OHS (Accident frequency rate, number of accidents per 1,000 employees)

Governance:

  • Share of independent board members (% of total Board)
  • % of shares in free float
  • Transparency in corporate reporting (according to Transparency international)

The final score for each section (E, S and G) was calculated as an average score for all indicators included to the correspondent section. The final ESG-score was determined as a weighted average of all indicators included to all three sections having the equal weights in the model.

 

ESG Ranking of Russian companies 2018

Company / Position

E

S

G

ESG

Lukoil

6

1

1

1

MMK

9

3

5

2

Gazprom

11

6

3

3

Tatneft

5

4

9

4

ALROSA, AK

16

9

7

5

Russian Railways

4

11

11

6

Rosneft

10

5

18

7

Rosseti

2

13

15

8

NOVATEK

3

14

14

9

Norilsk Nickel

17

8

17

10

Aeroflot

1

19

12

11

NLMK Group

13

21

6

12

UC RUSAL

23

7

8

13

SIBUR Holding

8

15

23

14

Transneft

14

10

25

15

RUSHYDRO

12

18

20

16

Metalloinvest

18

16

22

17

Inter RAO

25

2

4

18

SEVERSTAL

19

24

10

19

Rosatom

20

12

28

20

EVRAZ

21

20

13

21

Siberian Coal Energy Company (SUEK)

22

17

24

22

Surgutneftegaz

7

26

26

23

Sakhalin Energy

15

30

29

24

EuroChem Group

26

22

16

25

Mechel

27

29

2

26

T Plus

27

23

21

27

United Shipbuilding Corporation

27

25

19

28

United Aircraft Corporation

24

28

27

29

UMMC

27

27

30

30