In light of the recent updates to our Poverty Pillar, members of our sustainability team break down the how and why of using data in our model update cycle. 

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Climate change, women’s rights, and poverty are major issues that we know investors care deeply about. They are also issues about which our collective understanding tends to evolve. Part of Ethic’s mission is to ensure that our clients have a transparent understanding of how their portfolios impact the issues they care about. To do that, it is essential that we remain up to date on these issues, or Pillars as we refer to them at Ethic, from both a research and a data lens. That is why we maintain a rigorous update cycle of our Sustainability Model in which we diligently re-examine the data sources and research that form the backbone of our Pillars. Today, Sustainability Research Lead Sophie Griffith (SG) and Sustainability Data Lead Crystal Sun (CS) get into the nitty gritty of how they utilized new research and data acquisitions to inform Ethic’s most recent update to the Poverty Pillar. 

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Some Key Takeaways From Their Work:

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• What’s in a Screen: Screens in our Sustainability Model are specific company behaviors for which we can exclude companies from investment depending on our client’s preferences. 
• Pillar Additions: New data can lead to new questions, which are answered by our research process. We recently acquired data on companies that advertise or sell unhealthy food and beverages, which led us to search for — and find — research that links income disparities to greater exposure to ads for nutrient-poor food and beverages. 
• Pillar Deletions: If we find we have insufficient data to link a company behavior to an issue that impacts a Pillar, we are diligent about deleting that screen and adding ‘search for more precise data’ to our to-do list. 

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SG: We have this cycle for a simple reason: our thinking and our data change over time. Sustainability issues are constantly evolving. So when we start the research cycle on a Pillar we haven’t looked at for a while, we expect to find new connections between company behavior and impact. We also look for new ways to measure and interpret existing connections, and this can lead to adding or deleting screens in our Pillars.

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CS: Screens in our Sustainability Model are specific company behaviors for which we can exclude companies from investment depending on our client’s preferences. We have internal tools that allow us to create sustainability screens from any data source by simply creating a list of the companies and uploading them to our system. 

This is extremely powerful because we capture company behaviors not only from our main data vendors but also from non-profit research papers, websites, annual reports, etc., as long as those sources pass our research criteria.

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SG: In the case of the Poverty Pillar, we found a few cases where existing behavior screens weren’t actually capturing the behavior our research was pointing to so we ended up deleting those screens. For example, research shows a link between CEO pay inflation and wage stagnation, so the Poverty Pillar includes our Executive Pay screen, which captures companies with disproportionately high executive pay packages. In practice, however, we found that most companies currently flagged with this screen tend to be from relatively high-paying industries, such as private equity and asset management. As a result, we removed this screen from the Poverty Pillar and added a more precise metric to our data wish list.

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CS: We also added some new screens, based on more recent research and data acquisitions. A few years ago, we found a research paper that quantifies the frequency with which companies that make or sell unhealthy foods, like McDonald’s or Kellogg’s, and target children in their marketing that could be seen as deceptive or misleading. After we saw an increase in requests from clients to address this issue, we built a screen that flags companies that market unhealthy foods to children. During the most recent Poverty Pillar review, the research team found a research-backed connection that indicates children in poor areas are disproportionately targeted by unhealthy food advertising. As a result, we added this screen to the Poverty Pillar in its most recent update.

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SG: The last time we looked at the Poverty Pillar was before we’d acquired the Unhealthy Food and Beverage screen. So we thought we should look for any relevant connections — and found one easily! Children and adolescents in low-income communities are disproportionately exposed to advertisements for nutrient-poor foods and beverages. Exposure to these advertisements may increase the risk of a variety of health conditions so we’ve just added this screen to the Poverty Pillar. 

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Here’s an example of what the Unhealthy Food and Beverage screen captures in our model. As Crystal mentioned, a 2023 study found that Kraft Heinz had one of the highest proportions of unhealthy food products among the world’s largest food manufacturers. The company can be flagged by the Unhealthy Food & Beverage screen in the Poverty Pillar. 

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Another new addition to the Pillar is the Packaging Waste screen, which allows us to flag companies like PepsiCo. The beverage company is one of the top contributors to packaging pollution globally. In 2023, the State of New York sued the company for contributing to water pollution that, among other things, led to the microplastic contamination of drinking water in the city of Buffalo. In general, lower income communities are disproportionately exposed to contaminated drinking water. 

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We continuously update each of our Pillars on a rotating basis as we strive to ensure that we can provide our clients with truly personalized portfolios that reflect their specific values. For more from Sophie, Crystal, and the rest of the Sustainability Team, check out our Meet the Sustainability Team video.  

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