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Asset4 a database of Thomson Reuters, provides environmental, social and governance performance information, which is primarily used by professional investors and corporate executives. It provides objective, relevant and systematic ESG performance information. A team of over 130 experienced analysts collect 900 ESG evaluation points per firm, which is used to calculate 250 key performance indicators. Each data point goes through a multi-step verification process, including a series of data entry checks, automated quality rules and historical comparisons. Data sources include stock exchange filings, CSR and annual reports, non-governmental organisation websites and various news sources. Primary data used are objective and publically available.

There are 18 categories of key performance indicators within four pillars, namely Economic (3 categories), environmental (3 categories), social (7 categories) and governance (5 categories). Only environmental, social and governance pillars are relevant for the analysis in this thesis. The environmental score as defined by Asset4 “measures a company's impact on living and non- living natural systems, including the air, land and water, as well as complete ecosystems. It reflects how well a company uses best management practices to avoid environmental risks and capitalize on environmental opportunities”. It

covers “hard” performance indicators (as classified by Clarkson et al., 2008) such as information on energy used, CO2 emissions, water and waste recycled, and spills and pollution controversies. Hence, the aggregate environmental score measures a firm’s environmental performance. The social score as defined by Asset4 “measures a company's capacity to generate trust and loyalty with its workforce, customers and society, through its use of best management practices”. It covers issues like employee turnover, accidents, training hours,

donations, and health and safety controversies. Social score also covers mostly “hard” performance indicators and hence is an objective measure of the social

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I also use Bloomberg to check carbon data availability. Use command CEDL <go> to check all companies submitted emission data to CDP, it is found that there are 2588 companies in the UK exchange market submitted emission data, but only 208 companies provide carbon information in 2006/2007/2008.

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performance of a firm. Table 2.2 shows the pillars and sub-categories of ESG scores from Asset4.

Table 2.2 ESG pillars and sub-categories (2002-2010)

Pillars Sub-categories

Environment score (ENVSCORE) – The environmental pillar measures a company's impact on living and non-living natural systems, including the air, land and water, as well as complete ecosystems. It reflects how well a company uses best

management practices to avoid environmental risks and capitalize on environmental opportunities in order to generate long-term shareholder value.

Emissions reduction Resource reduction Product innovation

Social score (SOCSCORE) - The social pillar measures a

company's capacity to generate trust and loyalty with its workforce, customers and society, through its use of best management

practices. It is a reflection of the company's reputation and the health of its license to operate, which are key factors in determining its ability to generate long term shareholder value.

Employment quality Health & Safety

Training & Development Diversity

Human rights Community

Product responsibility Governance score (CGVSCORE) - The corporate governance

pillar measures a company's systems and processes, which ensure that its board members and executives act in the best interests of its long-term shareholders. It reflects a company's capacity, through its use of best management practices, to direct and control its rights and responsibilities through the creation of incentives, as well as checks and balances in order to generate long-term shareholder value.

Board structure Board function Compensation policy Shareholder rights Vision & Strategy

Note: Datastream code is presented in parentheses.

From Table 2.2, it can be seen that E, S and G pillars measure firms’ environmental, social and governance performance respectively. Asset4 ESG data can be obtained from Datastream. The ESG data is available from 2002 onwards. Firms with no Asset4 ratings are excluded from the study in Chapter 6. This limitation of the analysis is discussed in further detail in the relevant chapter.

Asset4 provides more comprehensive calculation of the rating scores. Key performance indicators, categories, pillars and overall score are equally weighted computer calculations of relative company performance, the benchmark being the Asset4 company universe. These ratings are Z-scored and normalized to position the score between 0 and 100%. The Z-score is a relative measure comparing one company with a given benchmark. It expresses the value in units of standard deviation of that value from the mean value of all companies. Among other things, this allows to create more distinction between values that otherwise might be very close together (Asset4 document). A

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number of prior studies adopted Asset4 ESG dataset to measure firms’ environmental, social and governance performance (e.g., Ioannou and Serafeim, 2012; Kocmnova et al., 2011; Chen et al., 2012; Lam et al., 2012; Cheng et al., 2012; Wimmer, 2012).

Table 2.3 provides the definition and measurements of board attributes and CSR strategy variables used in Chapter 6.

Table 2.3 A break-down of governance pillar (Asset4 data fields)

Category Definition/Measurement DS Code

Board Structure and

composition variables

Percentage of Independent Board Members (%) Percentage expressed numerically of independent board members as reported by the company (whereas the company stipulates that there is no significant institutionalised interest link between the company or the executives and the independent board members).

CGBSO07V

Board Diversity (%) -Percentage of women on the board of directors.

CGBSO17V CEO-Chairman Separation (Y/N) Does the CEO

simultaneously chair the board?

CGBSO09V Audit Committee Expertise (Y/N) Does the company have

an audit committee with at least three members and with one of those members being considered a "financial expert" within the meaning of Sarbanes-Oxley given his or her extensive experience in accounting and auditing matters?

CGBFO03V

CSR related vision and strategy variables

Integrated Vision and Strategy Challenges and

Opportunities (Y/N) Is the company openly reporting about the challenges or opportunities of integrating financial and extra-financial issues, and the dilemmas and trade-offs it faces?

CGVSDP016

CSR Sustainability Committee (Y/N) Does the company have a CSR committee or team?

CGVSDP005 CSR Sustainability Report Global Activities (Y/N) Does the

company's extra-financial reporting take into account the global activities of the company?

CGVSDP029

CSR Sustainability External Audit (Y/N) Does the company have an external auditor of its CSR/H&S/Sustainability report?

CGVSDP030

GRI report guidelines (Y/N) Is the company’s CSR report published in accordance with the GRI guidelines?

CGVSDP028