Part II-5 Analyzing the Spread of Industry Performance

Question 1

How can a user gain a better understanding of where companies stand relative to one another or to an industry benchmark, and of how company performance on an ESG issue is shaped by its broader industry characteristics?

Answer 1

By evaluating the spread of performance

Question 2

Descriptive statistics can be grouped into 2 categories

Answer 2

measures of central tendency or measures of variability

Question 3

Measures of central tendency help to…

Answer 3

help analyze the average or middle values of a dataset

Question 4

Measures of central tendency include the following

Answer 4

Mean
Median
Mode

Question 5

Measures of variability (or spread) help to

Answer 5

• help analyze how dispersed a set of data is

Question 6

Measures of variability (or spread) include the following:

Answer 6

Standard deviation
Mean absolute deviation (MAD)
Minimum and maximum variables

Question 7

T/F - high standard deviation indicates that values tend to be closer to the average; while low standard deviations indicate that values are spread out over a wider range

Answer 7

False - low standard deviation indicates that values tend to be closer to the average; while high standard deviations indicate that values are spread out over a wider range

Question 8

What is the standard deviation?

Answer 8

is a measure of how dispersed a set of values is within a dataset.

Question 9

What is the Mean absolute deviation (MAD)?

Answer 9

the average distance between each data value and the mean

Question 10

What are Minimum and maximum variables?

Answer 10

the difference between the minimum and maximum variables in a dataset and indicate the range of performance

Question 11

What would a mean absolute deviation (MAD) of $1.5 billion mean as it relates to fines for legal proceedings?

Answer 11

The values of individual fines are on average $1.5 billion from the mean; and indicates the data is widely dispersed and would benefit from normalization

Question 12

Why is it good to normalize metrics in the Leadership & Governance sustainability dimension by revenue?

Answer 12

To better assess the cash flow implications of fine-related losses

Question 13

What are Quantiles?

Answer 13

divide a frequency distribution into equally sized groups, each containing the same number of observations

Question 14

Quantiles can be helpful in…

Answer 14

determining thresholds for good, average, and poor performance in an industry

Question 15

Quantiles can used in 2 ways

Answer 15

To indicate the data value at a given quartile

To indicate the ranking of a given data value

Question 16

What are the most commonly used quantiles?

Answer 16

Quartiles (four quantiles)
Quintiles (five quantiles)
Deciles (ten quantiles); and
Percentiles (100 quantiles)

Question 17

T/F - Quantiles can be used in conjunction with normalized data (i.e. employee engagement as a %)

Answer 17

True

Question 18

What is a Normal distribution?

Answer 18

a smooth, bell-shaped graph representing the most common distribution of data- one with many datapoints concentrated in the middle (mean) of the range of performance and the remaining values trailing off symmetrically on each side

Question 19

T/F - the farther a value is from the mean, the more likely it is to occur

Answer 19

False - the farther a value is from the mean, the less likely it is to occur

Question 20

T/F - within a normal distribution curve, the percentage (or probability) of values occurring within a range are always different

Answer 20

False - within a normal distribution curve, the percentage (or probability) of values occurring within a range are always the same - 68% of values will fall within one standard deviation of the mean, 95% will fall within two standard deviations, 99.7% will fall within three standard deviations

Question 21

What does it mean if the standard deviation is 5.69 and the mean is 18.1% for percentage of water withdrawn in regions with high or extremely high baseline water stress?

Answer 21

It means that 68% of the population is between 12.41% and 23.79% of the measured metric

Question 22

What are the standard deviation %s?

Answer 22

One - 68%
Two - 95%
Three - 99.7%

Question 23

What are some reasons a company could be an outlier?

Answer 23

1- It faces specific significant risks or opportunities
2- It indicates the comparison of absolute values reported by companies may be improper for drawing conclusions about their relevant performance and requires normalization

Question 24

What are asymmetrical or skewed distributions in ESG information?

Answer 24

When ESG performance values cluster around certain points in the distribution range

Question 25

What measures how often values fall above or below the average?

Answer 25

Skewness

Question 26

At the industry level, what can skewness be caused by?

Answer 26

Underlying financial or operational characteristics of companies
Industry-wide regulatory conditions; and/or
Data characteristics such as performance floors and ceilings

Question 27

T/F - If a certain characteristic of an industry skews the distribution of sustainability data , a user may want to consider normalizing the metric by that variable -

Answer 27

TRUE - Doing so can restore “normality” to the distribution

Question 28

T/F - when a company is part of a cluster just under or just above a mandated limit - i.e its metric is relatively close to regulatory standards - the firm could be exposed to risks of non-compliance in the event these standards become stricter

Answer 28

True

Question 29

T/F - when a company’s performance falls within the tail end of the distribution curve (i.e. far away from required regulatory rates), it is less likely to be exposed to risks associated with increased regulatory stringency and therefore has a competitive advantage

Answer 29

True - this could allow it to obtain pricing power and capture a larger share of the market

Question 30

What is the type of risks where a significant share of companies in an industry will be exposed to regulatory risks?

Answer 30

Industry-wide or systemic risk

Question 31

What is the impact of systemic risk?

Answer 31

Companies may be required to invest significant amounts of R&D and capex to improve

Question 32

What is one way ratings agencies may develop techniques to assess the relative performance of companies?

Answer 32

Data aggregators will collect data structured according to a proprietary set of indicators, which may be industry agnostic or industry specific - such as Health and Safety