Vigeo Eiris

Vigeo Eiris (now part of Moody's ESG Solutions) is a global leader in providing research and ratings on a company's environmental, social, and governance performance. Think of it as a credit rating agency, but for a company's character and sustainability instead of just its ability to pay back debt. Investors, especially those practicing sustainable investing or socially responsible investing (SRI), rely on Vigeo Eiris's analysis to understand risks that don't show up on a traditional balance sheet. For example, a company might look profitable, but if it’s polluting a river or has terrible labor practices, it could face massive future fines, lawsuits, and reputational damage. Vigeo Eiris digs into these non-financial details, scoring companies on hundreds of criteria to give investors a clearer picture of their long-term viability and ethical standing. Originally a merger between two European agencies, Vigeo and Eiris, the firm was acquired by Moody's Corporation in 2019, integrating its expertise into a broader suite of risk assessment tools.

Vigeo Eiris doesn't just take a company's word for it. Their process is like a deep-dive investigation.

• Data Collection: They gather information from public sources like annual reports, but they also look at media coverage and input from stakeholders like non-governmental organizations (NGOs) and trade unions.
• Framework-Based Analysis: They assess this mountain of data against a robust framework built on international standards, such as the United Nations Global Compact and International Labour Organization conventions.
• Scoring and Rating: Each company is scored on a scale (typically 0-100) across various criteria. This allows for direct comparison between competitors in the same industry. A high score suggests a company is actively managing its ESG risks and opportunities, while a low score waves a red flag.

The ESG acronym covers a vast territory. Vigeo Eiris breaks it down into three core pillars.

This looks at a company's impact on the planet. Key areas include:

• Energy consumption and use of renewables
• Greenhouse gas emissions
• Water and waste management
• Impact on biodiversity

This pillar focuses on how a company treats people—its employees, customers, and the wider community.

• Human rights policies, especially in the supply chain
• Employee relations (e.g., health, safety, diversity)
• Product safety and quality
• Community engagement and social impact

This is all about how a company is run. Strong governance is often a sign of a well-managed, shareholder-friendly business.

• Board independence and effectiveness
• Executive compensation policies
• Shareholder rights and protections
• Business ethics, including anti-corruption measures

At first glance, ESG might seem like a concern only for ethical investors, but a savvy value investing practitioner sees it differently. For a value investor, risk management is paramount. ESG data from firms like Vigeo Eiris provides a critical lens for identifying hidden risks that could destroy shareholder value. A company with poor governance (the 'G') might be misallocating capital or enriching management at the expense of owners, directly eroding its intrinsic value. A company with a terrible environmental record (the 'E') could be sitting on a ticking time bomb of future cleanup costs, fines, and regulatory headaches—a massive hidden liability. These are not soft issues; they are hard financial risks. By incorporating ESG analysis into a broader fundamental analysis, an investor can gain a more complete understanding of a company's quality and resilience. It helps ensure that a seemingly cheap stock isn't a “value trap” poised to underperform. In this sense, ESG data is a powerful tool for strengthening one's assessment of a company's true margin of safety. It's not about sacrificing returns for principles; it's about using principles to protect and enhance returns.