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The importance of October’s ESG score

The October ESG series continues deepening why an ESG score and the October’s ESG score is so important.

In the first article in our series, we explained what ESG means and why this issue matters deeply to October, to October employees, and to all actors in our surrounding community, besides for the regulator.

Then, our ride continued through how October applies ESG, sharing our of principles, commitments, and approach.

This is the time to come down to brass tacks.

Well! Let explain why it is so important an ESG score and iteration of October’s ESG score.

A simple and transparent ESG score for all

To help all actors in their decision process, it is necessary to develop tools to measure their alignment with ESG criteria.

Many financial institutions have resorted to using available data from public and private data sources. Their aim is to produce their own ESG score.

Analysts use this information to assess how exposed a company and/or its portfolio is to ESG risks, and how well it handles them. They also use it to compare the performance of a specific company compared to the its sector. The global risk assessment of the company include the score to be presented to their investment committee and to their investors.

October is following this path, with our own twist.

We develop ESG scores that focus on small and very small businesses. These companies have very low availability or clarity of ESG data and they are not used to monitoring their ESG performance. Besides, for years very small companies have been under-researched by investment firms, which were focused on bigger corporations.

Keep following us in this series and you will find a specific in-depth study on our SMEs in the next articles.

And now, let’s deep dive and explore the generations of our ESG score!

The first generation of our ESG Score

To score the ESG performance of these small companies in an easy and immediate way and answer instantly to their loan request, October launched in 2018 the first generation of our ESG Score.

October’s unique approach to ESG assessment leverages our tech and directly gathering information from our SME borrowers around themes identified as key for October’s target population of SMEs:

  • job creation
  • sustainable use of resources
  • human resources managed as the main wealth of the company
  • attention to suppliers and customers
  • positive impact on community
  • sound governance (auditors, financial reporting)

11 ESG KPIs reflected such data and composed the ESG Score.

These included participation in environmental or social initiatives and sustainable use of energy and resources. But also number of jobs created, sound governance practices, absence of fraud and others.

The second generation of our ESG Score

In September 2021, October put in place a dedicated ESG cross-countries task force.  This team developed a second generation of our ESG Score.

This new iteration, launched in May 2022, brings several important updates.

  • Increasing the coverage and the number of indicators included in our ESG score, bringing them to more than 30.
  • Aligning our ESG score to the requirements of the new European regulation, notably by covering what the regulation defines as “Principal Adverse Impact Indicators (PAI’s)” and “Sustainability Risks”.
    These include ESG impact indicators such as greenhouse gases emissions, water usage, waste production, gender balance and anti-corruption policies, as well as exposure to climate-related risks like global warming, environmental degradation, draught or climate catastrophes.
  • Enlarging our ESG data pool by partnering with internationally-recognized data provider companies specialised in ESG data.
    Why? We decrease the number of questions during the borrowers’ application process. We also make it much easier for borrowers to request a loan. And we make faster to receive an offer.
  • Enhancing the score’s automation, to decrease to a minimum the efforts required of the borrower and the manual intervention by October analysts.
    October’s proprietary technological tools are able to capture key social and governance data merely by scanning our borrowers’ documents!
    Some examples are wage payments made on time and in full, regular tax payments (key social and governance indicators), lack of instances of fraud (essential to good governance)… and there’s more!

The ESG Score is integrated into the sales process and the credit and underwriting process, and has an impact on the pricing of each loan.

This is a clear reflection of all the importance October gives to the evaluation of the extra financial performance in granting our loans!

What else?

We will clearly embed and display all dimensions of the score (E,S and G) in our portfolio reporting. We will publish periodically in compliance with European regulations – a fundamental criterion for our investors, and also on our website.