The annual PRI Awards provide an opportunity to showcase examples of leading practice from across our over 4,500 signatories.
The more than 80 submissions to this year’s ESG Incorporation Initiative of the Year and ESG Research Innovation of the Year categories offer a window on how signatories are developing practices to meet a wide range of challenges, including:
- scaling up;
- capturing correlations between returns and ESG factors;
- data quality;
- prioritising social factors.
PRI reporting data has for years shown that an increasing number of investors are incorporating ESG factors across elements of their portfolios, but expanding ESG incorporation can be a tricky task – especially where an organisation covers multiple geographies and applies a range of investment strategies.
J.P. Morgan Asset Management is addressing this challenge by centralising data distribution and quality control whilst giving individual teams “flexibility to incorporate ESG factors in a way that preserves the integrity of a specific investment process”.
Other applicants are extending ESG incorporation into funds that are not explicitly ESG-focused. Grantham, Mayo, Van Otterloo & Co. LLC is taking an econometric approach to analysing the ESG performance of emerging market sovereign issuers. They provide an example of ESG analysis in asset classes that are newer to ESG incorporation – going beyond corporate fixed income and listed equities.
Utilising ESG research and rankings
Rockefeller Asset Management (winner in this year’s ESG Incorporation Initiative category) set out how it looks to benefit from correlations between ESG rankings and shareholder returns. It identifies, measures and incorporates the change in performance in ESG factors between companies in long-only and long/short investment strategies. The strategy goes long on companies that are top quintile ESG improvers and short on companies that are bottom quintile decliners.
Looking outside the box for data
Unsurprisingly, a lack of high-quality, comparable data was the number one challenge entrants described, and many mentioned innovative approaches to tackling it.
Some investors are using alternative data sets – such as from social media or satellite imagery – to provide better insights than traditional sources, such as corporate reporting and ESG ratings providers
WWF & Ninety One are using remote sensing to feed an index that assesses environmental risks at the country level, while MioTech uses a platform that encompasses data sourced from remote sensing on regional distributions of greenhouse gases, air pollutants and landcover types.
“Remote sensing data can be more reliable and consistent than self-reported data […] and can offer a means of detecting greenwashing activities hidden behind corporate sustainability and ESG reporting,” MioTech said.
Prioritising social factors
The social dimension of ESG often receives less investor attention than climate and governance factors, but there are compelling examples of the ways that investors are increasingly looking to ensure social issues are adequately considered alongside their climate and governance factors.
BNP Paribas Asset Management describes a global equity strategy that uses an “inclusive growth” score to identify and invest in companies that incorporate social factors. Alongside governance and environmental factors, the score is based on company performance across 14 social metrics, in areas such as training and workforce diversity. Data gaps are filled by in-house investment teams engaging with the companies in question.
ESG Incorporation Initiative of the Year
- Rockefeller Asset Management: ESG Improvers – an alpha enhancing factor
- J.P. Morgan Asset Management: ESG Integration, Investment-Led, Expert-Driven
- Acadian Asset Management: Green-leader or green-washer? Using AI to prioritise company engagements
- BNP Paribas Asset Management: Inclusive growth
- Grantham, Mayo, Van Otterloo & Co. LLC: Integrating macro ESG metrics into emerging market sovereign debt investing
ESG Research Innovation of the Year
- Sustainalytics: 10 for 2021 – Investing in the Circular Food Economy
- WWF & Ninety One: Climate & Nature Sovereign Index
- MioTech: Incorporating Remote Sensing Data to ESG and Alternative Risk Monitoring
- Insight Investment: Prime climate risk ratings
This blog post focuses on findings from submissions to the ESG Incorporation Initiative of the Year and ESG Research Innovation of the Year categories. For more examples of best practice, read case studies from the shortlisted and winning entries in all PRI Awards categories.
This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories.Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice.If you have any questions, please contact us at [email protected].