the role of data in esg & impact investing integrating esg ... · the role of data in esg &...

The role of data in ESG &

impact investing

Integrating ESG Data

Dario Popadic, Quantitative Analyst 4F Equities

13 June 2019, Amsterdam

2 Confidential | Investec Asset Management

General risks

The value of investments, and any income generated from them, can fall as well as

rise. Where charges are taken from capital, this may constrain future growth.

Past performance is not a reliable indicator of future results. If any currency differs

from the investor's home currency, returns may increase or decrease as a result of

currency fluctuations.

Investment objectives and performance targets are subject to change and may not

necessarily be achieved, losses may be made.

Target audience

This document is being provided for informational purposes for discussion with

institutional investors and financial advisors only. Circulation must be restricted

accordingly.

Nothing herein should be construed as an offer to enter into any contract, investment

advice, a recommendation of any kind, a solicitation of clients, or an offer to invest in

any particular fund, product, investment vehicle or derivative.


Agenda

1. Responsible Investing at Investec Asset Management

2. How we use RepRisk

3. Early Findings of Empirical Research

4. Working towards a tailored ESG Quant solution


Responsible investing at Investec Asset ManagementWe monitor, evaluate and actively engage or withdraw investments with the aim of

preserving or adding value to our clients’ portfolios.

Develops

ESG

approach

Therese

Niklasson,

Global Head of

ESG, joins

Joins Principles

for Responsible

Investment

(PRI)

Establishes:

● Investment

Governance

Committee

● Stewardship

policy

● Ownership and

proxy voting

guidelines

Signs UK

Stewardship

Code

Evolves

integration

programme

Signs SA

CRISA

Code

Formally sets

up ESG team

Sets up

Investment

Sustainability

Forum

Expands

exclusion

policy

Establishes

exclusion

principles on

cluster

munitions

Expands

ESG

team

Develops

ESG tools for

investment

teams

Integrates climate

change statement

within stewardship

policy

Expands

private markets

expertise

Appoints

Head of

Engagement Publishes first

integration

progress

report

Publishes second

integration

progress report

Enhances

transparency

and disclosure

with Annual

Stewardship

reportOnboards

external

data

provider

Sets up

ESG

integration

framework

Launches first

Sustainability

fund

Creating sustainable

investment solutions

Ensuring ESG is integrated across all

of IAM’s investment strategies

Ensuring we are active

stewards of capital

2016 2017 20182014 20152009 2010 2011 20122008 2013 2019

Launches

second

Sustainability

fund

Source: Investec Asset Management, May 2019.


Source: RepRisk, May 2019.

● We use a number of external ESG data and research sources that are intended to

complement fundamental research

● In a world where externalities are being internalized, the quality of data becomes increasingly

important

● We have built internal tools and scoring systems that are powered by independent research

and data

RepRisk’s focus on capturing adverse information, the differentiated approach and its fast

moving and event-driven data makes it a core component of our ESG analysis. The increased

granularity through assigning risk incidents to categories allows us to perform a deeper

analysis and hence get more out of the data than simply ESG scores.

RepRisk helps us: 1. Analyse ESG issues

2. Build proprietary models

3. Monitor portfolio’s ESG profile and discuss external risk

How we use RepRiskRepRisk’s proposition



RepRisk focuses on assessing companies' reputational risk and monitoring ESG issues

based on sources external to a company. It is differentiated and complementary to the more

traditional, research driven ESG ratings such as MSCI.

● RepRisk attaches each risk incident to the issuer according to 28 ESG issues, which map

onto the Ten Principles of the UN Global Impact

● Relevant data from over 80,000 public media and stakeholder sources every day are

screened

A risk metric called RRI (RepRisk Index) is attributed to each company, ranging from 0

(lowest) to 100 (highest). The RRI is calculated regarding the number of issues, severity and

novelty of risk incidents on a daily basis.

RepRisk Methodology


Thai authorities to pursue

investigation into Rolls-Royce

Assigned:

● Medium level of reach (Level 2)

● Medium level of severity (Level 2)

1. Screening of news

2. Identification of E S or G issues

3. Assigned levels of:

● 80 000 news sources in 20 languages

● Keywords scanned related to ESG issues (UNPRI)

● Reach: How influential the source is and how widely read

● Severity: Scale of the issue and level of criticism

Keywords linked to issues:

● Violation of national legislation (G issue)

● Corruption (G issue)

Methodology Example: Rolls Royce


RepRisk Example Flag


Source: Investec Asset Management 4Factor, Date: 01 Jan 2007 – 31 Dec 2017.

Number of issues is an insightful metric

number of issues / month

Highlights increased likelihood

Likelihood of negative outcome vs number of issues over various holding periods

difference between

the two groups

● The higher the number of issues, the more likely that there is a negative outcome

● The likelihood increases with time

Holding period

A look into the dataHow well would a portfolio have done by avoiding the companies with high number

of issues?


Source: Investec Asset Management 4Factor, Date: 01 Jan 2010 – 31 Jul 2018.

Cumulative return profiles for the low / high number of issues and comparison across

multiple holding periods

Low # of Issues

High # of issues

Universe

* The distribution of the total number of issues that are recorded each month is

skewed. For example, it is most common to have two issues recorded in a

month. Therefore, we combine the bottom two tertiles of constituents to form the

low number of issues with the remainder being the high number of issues.

Focusing on high number of issues can help to mitigate ESG risks

Initial backtests


Source: Investec Asset Management 4Factor, Date: 01 Jan 2007 – 31 Dec 2017.

RepRisk RRI metrics share a similar level of importance

Detailed analysis of RepRisk RRI-score Number of issues

* Average annualised return is calculated as the average across all holding periods (1,3,6,12,18,24 months)

** Scoring: 1 (low), 2 (medium), 3 (high)

Ave

rag

e a

nn

ua

lise

d r

etu

rn %

High Low

RepRisk Index


● The lack of transparency and a common standard reporting format for companies

presents a major challenge, in particular for a more data driven ESG approach. Third-party

ESG data providers have different scoring approaches which can provide varying views

‒ 125 ESG data providers*

‒ Providers create their own scoring methodologies and sourcing

‒ Risk of incorporating judgement calls of providers into the investment process

● Key differences among providers:

‒ Aggregation and weighting of factors

‒ Data acquisition and estimation

‒ Materiality of factors

● IAM has built a scoring system based on data from various best-in-class providers and

utilises the Sustainability Accounting Standards Board’s (SASB) materiality framework

Working towards a tailored ESG Quant solutionESG Data Challenges

*Source: The Global Initiative for Sustainability Ratings.

Requirement for tailored ESG scoring


Working towards a tailored ESG Quant solutionESG Scoring Approaches

Source: Investec Asset Management 4Factor, May 2019.

Proprietary Do Good Score aligned with investment process

● The Do Good Score translates information related to a company’s Environmental, Social and

Governance performance into a signal that is ready for practical application in investments. It

links ESG information and investment performance by identifying the financially material

issues

How it works

● The assessment of financial materiality is carried out in two ways, both of which combine to

create the ultimate Do Good Score. Good performance on both inputs mean a company is

Doing Good

(1) Pre-defined mapping of the SASB to identify the material issues

(2) Historical performance of ESG issues per region, sector and size of company


Working towards a tailored ESG Quant solutionESG Data integration and visualisation

Source: Investec Asset Management 4Factor, May 2019.

ESG visualisation tools help us to get the most out the data

ESG forms a core part in investment decisions and data from various providers is being

integrated into our platforms for:

● Proprietary ESG scoring

● Holistic security level ESG analysis

● Portfolio level scores


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Investment Team

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Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein.

There is no assurance that the investments presented will be available in the future at the levels presented, with the same

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Performance Target

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market conditions. There can be no assurances that any Strategy or Fund will generate such returns, that any client or

investor will achieve comparable results or that the manager will be able to implement its investment strategy. Actual

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References to particular investments or strategies are for illustrative purposes only and should not be seen as a buy, sell

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Indices

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Institu

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