Alternative data have a key role to play in analyzing environmental, social and governance (ESG) factors because many of these factors are not covered in traditional company reporting, and a lack of standardization makes comparison difficult even when data is reported. The problem is most acute—and, in our view, the data science potential most promising—when it comes to “softer” social factors such as human capital management.
U.S. telecommunications giant Comcast appears to have good reason to promote itself as a rewarding place to work. For the third straight year, in 2019 it was named to LinkedIn’s Top Companies list, ranking 15th. In the same year, Fortune ranked it third in its list of “Best Big Companies to Work For” as well as listing it among its “100 Best Companies to Work For.” In 2018 the firm was named a Leading Disability Employer by the National Organization on Disability.
Turn to the ESG rating agencies, however, and we see a different picture. Just as Comcast was receiving these accolades, MSCI was pointing to its planned acquisition of Sky and its “multiple labor controversies” and giving it a Labor Management ranking of 2.8—much lower than the sector average of 6.2.
Whom to believe? It is tempting to trust the professional rating agencies over the eye-catching awards. But we know that there are often severe discrepancies between different agencies’ ratings of the same companies. Alternative data can give us a new, proprietary perspective on these questions.
One source of data are the opinions, reviews and ratings that employees leave on the recruitment website Glassdoor. When we scraped those for the telecommunications sector, we found that Comcast ranked well above average.
Perhaps a more objective, less-biased sourced of data are active job postings. We can now collect these from more than 8,000 U.S. public companies, a sample that represents almost three-quarters of all the job advertisements in the U.S. We find it revealing to compare the proportion of a company’s workforce that is represented by currently live job postings with subsequent growth in Selling, General & Administrative expenses. We believe that gives us an insight into how many of those job postings relate to genuine expansion of employment at the firm and how many are due to churning of the same role—a high rate of churn would imply that employees don’t believe the firm is a good place to work.
On that metric, Comcast’s ratio compared well with its sector peers, putting it seventh out of 22 companies.
This example shows how alternative data can offer new, proprietary perspectives on often contentious ESG factors, where divergent views are commonplace. Together with data science techniques, they can contribute to a more holistic view of companies’ exposures to ESG risks and their progress in addressing those risks.