Environment, Social, and Governance (ESG)

There is a growing recognition within our industry that a firm’s success or failure cannot be measured purely in financial terms.  The impact a company has on the environment it operates in, the customers it serves, and its own employees also matters.  Our ESG research seeks to quantify those impacts and ultimately make judgements about which firms are ESG champions and which aren’t.  The foundation of our process is a quantitative ESG ranking system that assesses a firm, relative to its industry peers, across a wide range of industry-relevant ESG factors.  These rankings are updated quarterly and available for major developed markets around the world.

The second part of our ESG offering is in-depth research on the interaction between ESG factors and financial metrics.  The question for equity mangers is not just whether ESG adds alpha, it’s also whether ESG already overlaps with parts of their existing stock selection framework.  For example, in our work we’ve found that good corporate governance is positively correlated with better capital deployment, meaning a company with robust checks and balances in the firm’s C-suite is less likely to fritter away what is ultimately the shareholders’ capital.  That’s an intuitive result, but it also means that many equity managers already implicitly capture corporate governance in their investment process when they scrutinize a firm’s capital spending and M&A behavior. Knowing which parts of an ESG framework are additive and which aren’t is valuable and we think our work can help. Ultimately, many asset management firms have signed aspirational pledges like the UNPRI without fully working through the details of ground-level implementation.  Our ESG research can help because it focuses on the real-world integration of ESG considerations into an investment framework.

ESG Model Performance (Live).

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