Consistent Measurement of Impact and Risk in Controversy Ratings

This technical report presents a refined methodology for measuring impact and risk associated with environmental, social, and governance (ESG) controversies, focusing on the principles of double materiality. The report outlines a standardized assessment framework that ensures consistency and transparency in evaluating these factors across various incidents. It details case studies involving PT Astra Agro Lestari and Mondelez, illustrating how the methodology differentiates between levels of company involvement and applies discount factors accordingly. The report also discusses the assessment of financial risks related to ESG controversies, emphasizing the importance of evaluating the potential erosion of enterprise value. By establishing a uniform set of variables for impact and risk analyses, the methodology enhances objectivity and reliability, facilitating better comparability across companies and industries. The findings aim to empower investors with improved tools for portfolio screening and due diligence, ultimately leading to more informed decision-making regarding company engagement or exclusion.