5 Discussion

Together, the findings from the three analytical approaches suggest several options that could be taken to mitigate gaps in ESG data, or deal appropriately with gaps that are unavoidable.

5.1 Discourage use of discontinued indicators

15 indicators, or 11% of the 134 studied, have been discontinued by the World Bank and are no longer maintained. They continue to be available for historical purposes, and only reside in databases that are described as “archives” in the World Bank Data Catalog. None of these indicators appear in or affect the WBG dataset. Still, it is possible that external users may not be aware that the indicators are discontinued, particularly if they are accessing them through the API and not the data catalog.

In most cases, discontinued indicators have been replaced by a more recent and more appropriate substitute (see Appendix A). It is strongly recommended that ESG users switch to more recent indicators and discontinue use of those that are no longer maintained.

5.2 Technical enhancements to existing indicators

The previous two sections explored two ways in which technical approaches could be used to improve the coverage and quality of ESG data. First, it may be possible, as suggested in the previous volatility analysis, that statistical techniques could be used to impute, extrapolate, or estimate missing values in some cases. Although discussion of specific techniques is beyond the scope of this analysis, we can use indicator volatility as a proxy to estimate the potential for these techniques.

For instance, building off the approach demonstrated by the interactive tool in the previous chapter, if one stipulates that country/indicator series with a volatility coefficient no higher than 0.65 (slightly less than the median) can be extrapolated or estimated one year forward, data coverage in 2018 would improve from 31% to 37% of potential observations for all indicators and countries. At that level the number of indicators with some level of 2018 coverage would improve from 54 to 77 out of 115 total. An additional 28 of the original 54 indicators would see improved country coverage in 2018. While the choice of median CV is somewhat arbitrary, it gives some reference for what could be accomplished through established techniques and econometiric modeling.

The second possible approach involves the “limited relevance” indicators identified in the explanations framework. These are indicators where gaps in coverage may be due to the indicator being irrelevant to certain countries, either because they are very small or very rich. As a result, it may be possible to “assume” a reasonable value for indicators that fall into this explanation. For instance, it is reasonable to assume that “Net official development assistance” for high-income countries that are missing this value is $0. Likewise, it may be reasonable to assume that “Electricity production from nuclear sources” is 0% for small island economies. The other indicators in this cluster might similarly be inferred for certain groups of countries, effectively eliminating coverage gaps with little effort or cost. Alternatively, it may be possible to drop these indicators at the analytical level for countries for which they are clearly not relevant.

While use of statistical techniques to “enhance” data may sound enticing, great care would be necessary to make clear to data users which data are “actual” compared to which are “estimated.” Ideally, data users would be able to choose between an “actual” and a “estimated” dataset with full transparency and information on the implications of using estimated data. That said, “estimated” data are becoming increasingly common in the age of machine learning and artificial intelligence (e.g. weather forecasts or Zillow real estate estimates), so users may not find the concept to be especially exotic or concerning.

5.3 Consider higher frequency approaches or substitutes

The third option is to selectively improve the frequency of indicators where MRV is a significant issue, or find better sources where it not cost effective to make these improvements. The explanations analysis identified 102 indicators (76.1%) as either active but not recently updated or as likely having a “structural lag” of some sort in the production process that results in frequency gaps. However, 78 of 102 indicators are primarily produced by the UN or other outside organizations. This is an important consideration, because it means that investments to improve the frequency of existing indicators are really investments in the capacity of third party providers. Alternatively, if it is determined that this is not a practical approach, then the remaining options are to build this capacity internally (which would have its own significant costs), or identify alternative and cheaper substitutes.

Theoretically, there are several approaches that could at least partially fill gaps in ESG data, including:

  • Sentiment analysis derived from social media channels such as Twitter, Facebook, and Instagram. Within some domains, keyword and sentiment analysis could be used to detect high frequency changes in economic indicators such as employment, or conditions affecting governance or social stability. Online news sources could be analyzed in a similar fashion, leveraging services such as GDELT.
  • Mobile phone data such as Call Detail Records (CDR)–the metadata from cell phone calls–have been used to measure changes in migration as well as response to natural disasters and other disruptive events. There are also efforts to measure changes in living conditions via cell phones. It is possible these efforts might provide higher frequency tools for measuring poverty, income inequality, and a range of socio-economic conditions.
  • Geospatial data, especially satellite imagery and low altitude imagery from unmanned aerial vehicles (UAVs) are increasingly effective means of obtaining current, high resolution data. Satellite and drone imagery can be used to monitor ecosystems, agriculture production, soil moisture, and other environmental conditions. Night lights analysis has been suggested as a way to measure levels of economic activity, access to electricity, and impact from natural disasters.
  • Private sector sources are sometimes used as proxies or leading indicators in certain sectors. For instance, SafeGraph recently used geolocation data from cell phones to estimate foot traffic patterns to commercial storefronts as a proxy for economic activity during the 2020 coronavirus pandemic. Data from OpenTable, a restaurant reservation service, can provide high-frequency estimates of consumer spending. Activity data from ride sharing services such as Uber and Lyft might also provide proxies for economic activity. Google search trends could provide insights into emerging issues and potential hot spots.

Further research is necessary to determine the potential of each of these technologies to provide suitable data substitutes, and which indicators they could replace. Even at this point, however, some general caveats can be made about the potential for alternative sources.

With the exception of night lights data, none of the examples listed above has been produced at a global level or even for a critical mass of countries. While mobile phone data and sentiment analysis have been used extensively in many countries, examples of alternative data collection that targets multiple countries simultaneously are still limited. Obtaining alternative data from disparate countries comes with its own set of issues. For instance, sentiment analysis, which infers data from text, must account for language differences across countries. Data from technology platforms (such as OpenTable or Uber) are only available in countries where those platforms have achieved significant penetration, and must correct for selection bias where the user base is not representative of the broader population. Similarly, NLP techniques that rely on news sources, search queries, or social media will likely be affected by subjectivity bias and, in many cases, censorship. Furthermore, since many alternative sources have only be tested in small areas or in pilot studies, it is not clear if, when operated continuously at a global scale, they could actually produce data with higher frequency than traditional techniques.

More broadly, it is unclear whether alternative data sources would be compatible with traditional statistics, or whether they would be suitable for, say an ESG scoring framework. The indicators currently in the ESG database are designed to be producible and comparable across a large number of countries, and consistent over time. These design considerations are not necessarily true for the examples above. For instance, geospatial analysis may need to be recalibrated for local terrain, and sentiment analysis recalibrated for continually changing slang. Either adjustment could fundamentally change the definition of an indicator in a way that could confound temporal or geographic comparisons. Furthermore, most of the non-traditional methods listed above are not collected at regular, consistent intervals as statistics are. Thus, what may be cost effective and feasible for small area data production on an individual basis may not be cost effective for large area or global data production on a repeated basis.

On the other hand, geographic or temporal comparability may not be required in all use cases, depending on how the data are used. For example, high-frequency data from social media or news sources could still be useful as early warning detection systems, aside from their utility in an ESG scoring framework.

5.4 Conclusion and Next Steps

This analysis employed a range of techniques to better understand the extent and nature of gaps in ESG data, and explore options for improving data coverage. While some improvements can be made relatively easily and represent “low hanging fruit,” other options are likely to be more expensive and entail greater risk.

An implicit premise in this analysis is that the existing set of ESG indicators, coverage gaps notwithstanding, is ideally suited for ESG analysis and decision making. Significant investments in further research and alternative data sources should be predicated on first determining if the data fit well within the anticipated ESG analytical framework. At the time of this writing, the Bank’s ESG analytical framework is still under development. Accordingly, the most appropriate next step may be to further define the optimal ESG framework to more fully inform investments in data.

Similarly, the Bank’s ESG data strategy is also a factor in assessing options to improve quality. If the strategy is simply to provide data in support of an analytical framework then the choice of indicators would be straight forward and defined by the framework. However, if the strategy is to provide a broad portfolio of data to support any number of frameworks (including ones that users may define) then the data effort may be similarly broad, and include a wide range of data types–including traditional statistics, geospatial data, microdata, high frequency data and so forth–to encourage innovation among ESG investors.