This year, Trialogue became the official advisory partner of Farsight, a South African ESG (environmental, social and corporate governance) analysis firm. Trialogue offers our clients guidance to understand weaknesses in their ESG outcomes based on Farsight’s in-depth research.

The Farsight model was in the news this month, winning the Financial Mail/Intellidex Best Analyst Award for ESG research for the fourth year in a row, and for a cover story in the Financial Mail, titled “Rescuing ESG from ideology”.

Farsight MD Rob Worthington-Smith explains in the story that the correlation between ESG scores and a company’s market performance is highly inconsistent across global rating models. “Part of the issue is that ESG ratings models are blunt instruments, geared to hoover up data from thousands of companies. So their metrics, being simple, allow large, well-resourced companies to game the system,” he explains.

Worthington-Smith’s FarSight model attempts to address this issue by drawing a link between ESG response and leadership quality. “We believe that how leadership responds to ESG issues is a significant factor in the creation or destruction of shareholder (and in the long run, societal) value. Since 2017, we’ve analysed the top 100 companies on the JSE, rating leadership’s response to ESG issues across four dimensions: context (how well the company understands the issue), accountability (including through pay incentives), the usefulness of reporting, and the relevance of its strategy to resolving the issue.

“It is a qualitative analysis requiring human judgment of more than 250 data points making up the final score for each company,” he explains. “We split all 100 companies under coverage into five quintiles, which we re-evaluated each year using our FarSight leadership model. The top quintile has improved by 190%, while the bottom quintile lost 48% over the 4½ years.”

Contact matthew@trialogue.co.za if you would like to learn more about our partnership and how Trialogue can assist in unpacking and helping your company address your ESG weaknesses.

Read more on Financial Mail.