Controversy Exposure Score

The Controversy Exposure Score (CES) is a continuous score ranging from 0 to 100. It incorporates SESAMm’s proprietary Intensity, Volume, and Novelty scores to provide an ongoing, real-time measure of a company’s exposure to ESG risks, allowing our clients to understand and monitor risk over time.

The CES includes a time component that takes into consideration how ESG controversies evolve according to their severity level.

Three main components that impact the score’s value:

• Intensity Score: This is based on SESAMm’s Intensity Score. It measures the severity of each ESG incident, considering its impact on a company’s reputation, its stakeholders, its financial situation, and legal standing. This score is derived from a Large Language Model (LLM) fine-tuned by SESAMm’s experts and trained on thousands of humanly annotated events.
• Volume Score: The volume score assesses the number of articles associated with an event, calculated using a short-term rolling window. To ensure accuracy, the Volume Score is normalized against the average article volume concerning the company and event over the past year, reducing potential bias.
• Novelty Impact: The novelty score assesses the newness of a case, emphasising the importance of new cases over old cases.

The CES is calculated at the end of the ESG pipeline. For more information on the ESG pipeline, visit here. 

List of Fields

Methodology

Daily Risk

Daily ESG risk, referred as 𝐶𝐸𝑆_𝑖_𝑒𝑣𝑒𝑛𝑡(𝑡), is calculated for each event as below:

With:

• 𝐼𝑛𝑡𝑒𝑛𝑠𝑖𝑡𝑦_𝐼𝑚𝑝𝑎𝑐𝑡(𝑡): The Intensity Score is a proprietary metric developed to provide users with a fast, intuitive way to understand the potential severity of an ESG controversy. The intensity score ranges from 1 to 5, with 1-2 representing low-risk but relevant events and 3-5 representing higher-risk events.
• 𝑉𝑜𝑙𝑢𝑚𝑒_𝐼𝑚𝑝𝑎𝑐𝑡(𝑡): The volume impact, ranging from 0 to 5, is based on the daily number of articles related to the event, smoothed on a short term rolling window, and rebased over the average number of articles per event per day over one year (to avoid any size bias).
• 𝑁𝑜𝑣𝑒𝑙𝑡𝑦_𝐼𝑚𝑝𝑎𝑐𝑡(𝑡): The novelty impact, ranging from 0.66 to 1, adjusts the score based on how recent the case is. New cases are considered more impactful, as older cases are typically already “priced” in or discounted by the market. For approximately 17 months, the novelty score remains stable at around 1. After this period, it declines over the course of two months, reaching approximately 0.66.

Volume_Impact(t) calculation:

To compute the 𝑉𝑜𝑙𝑢𝑚𝑒_𝐼𝑚𝑝𝑎𝑐𝑡(𝑡), a 𝑟𝑒𝑏𝑎𝑠𝑒𝑑_𝑣𝑜𝑙𝑢𝑚𝑒_𝑒𝑣𝑒𝑛𝑡(𝑡) is calculated with the formula below:

Where

Depending on the 𝑟𝑒𝑏𝑎𝑠𝑒𝑑_𝑣𝑜𝑙𝑢𝑚𝑒_𝑒𝑣𝑒𝑛𝑡(𝑡) value, the volume impact will take the following values:

Novelty_Impact(t) calculation: To compute the 𝑁𝑜𝑣𝑒𝑙𝑡𝑦_𝐼𝑚𝑝𝑎𝑐𝑡(𝑡), a 𝑐𝑎𝑠𝑒_𝑎𝑔𝑒(𝑡) is calculated with the formula below:

If 𝑐𝑎𝑠𝑒_𝑎𝑔𝑒(𝑡) is NaN:

Else:

CES computation

The CES is then computed using the entity daily CES.

The 𝐶𝐸𝑆_𝑖 is the raw CES at the entity level. It is calculated considering each of the entity's events through their 𝐶𝐸𝑆_𝑖_𝑒𝑣𝑒𝑛𝑡.

If 𝐶𝐸𝑆_𝑖(𝑡) > 𝐶𝐸𝑆(𝑡 − 1):

Else:

Where 𝑑𝑎𝑖𝑙𝑦_𝑑𝑒𝑐𝑎𝑦 = 20/146

Interpretation:

• The CES does not begin to decrease until 14 days after a controversy, even if no additional controversies arise during that period. This indicates that the impact of a controversy on a company's ESG score remains unchanged for at least two weeks after the incident.
• If new controversies arise after the last CES calculation (i.e., after day t), the CES will be recalculated. If the updated CES (𝐶𝐸𝑆_𝑖(𝑡)) exceeds the previous day's CES (𝐶𝐸𝑆(𝑡 − 1)), the higher value will replace the previous one. However, if the new CES is lower, the value will follow its standard linear decay.
• The CES decays at a consistent rate, taking two years to decline from 100 to 0, provided no new controversies occur.