New ESG Research from IRRCi

IRRCi has an excellent new paper on the metrics used in the fast-growing field of ESG investing.

Recent years have seen a surge of investor interest in integrating environmental, social and governance (ESG) information into financial analysis and investment decisionmaking.

Signs of this trend include continued growth in the volume of managed assets
that incorporate ESG research, increasingly sophisticated investor tools, more ESG information providers, more ESG information gathering frameworks, more indices incorporating ESG data, and the use of ESG factors across asset classes, including fixed income and alternatives. According to data collected by the Global Sustainable Investment Alliance, ESG investment strategies, broadly defined, currently account for USD 22.9tn in managed assets worldwide, up from USD 13.3tn in 2012.

The report outlines the “typology” of ESG investing with “six prevailing types” of approaches.

Within this dimension, the two key differentiators for distinguishing approaches to ESG integration are:

a) the degree to which functions and responsibilities related to ESG integration
are centralized in an organization, and
b) the extent to which a firm or investment team has processes in place to
ensure integration.

The report also examines the scope of research and the difference between “top-down” (the development and execution of an investment thesis based on a general view (as opposed to a view derived from fundamental analysis) of how ESG factors may create investment risks and opportunities) and “bottom-up” (the integration of ESG factors into security-specific fundamental analysis in the context of security valuation and selection) applications.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s