ESG is the key topic in finance and investing in 2020 and isn’t going away any time soon. As per our ESG white paper, growth in ESG funds is increasing rapidly, for example Invesco is committed to ESG integration in 100% of its funds by 2023. But how can management gauge their progress on ESG? How can you determine the levels of ESG investment in you today given all the noise in the market? How can you compare your progress vs your peers? These are questions many of our clients ask themselves and us…
Many funds and institutions claim to be ESG focused but that does not necessarily mean all their funds are ESG – many institutions are transitioning to ESG but it will take time – and so determining ESG investment levels is challenging and fraught with potential inaccuracies. And whilst ESG ratings are helpful for companies and investors, there remain significant inconsistencies between ratings agencies and a good rating does not necessarily translate into high levels of ESG investment, especially as a growing number of buy-side firms are building their own inhouse ESG expertise. So here at Investor Update we thought we would simplify the methodology to quantify your ESG credentials.
Investor Update benchmarks the level of specific ESG-focused investment at the fund level in you vs your peer group – i.e. funds with specific ESG mandates in order to be precise. Yes, this is a likely a smaller proportion of overall ESG capital in the market, but importantly it is clearly identifiable and therefore clearly comparable across issuers, allowing us to determine whether a client is underweight or overweight ESG vs its peers. The analysis also allows us to identify target funds, both active and passive, including determining which indices (and therefore key metrics) that the passive funds follow. In this way a client can validate its ESG strategy and have a clear set of targets for continued ESG progress.
The results? One client had 8 ESG-focused funds invested in its shares vs over 300 in the peer group; or put another way, less than €500,000 invested in it vs over €1.3 billion in its peer group. This represented a huge opportunity to develop its ESG credential and attract additional pools of capital, with over 200 active funds and 99 passive funds identified. Another client was pleasantly surprised to be overweight vs its peer group in terms of ESG-focused investment (despite a smaller market cap), so found the analysis insightful as it not only validated their ESG strategy yet also identified approximately 150 target funds to increase their ESG investment levels further. Finally, a number of clients have found our sector-based analysis on major European Banks fascinating, highlighting significant differences in ESG investment levels across their peers and prompting deeper analysis.
Please get it touch for further details.