ESG Signals

ESG Signals is an innovative quantitative tool that provides securities-level financial risk and opportunity signals based on environmental, social and governance (ESG), trading and financial data. The tool analyzes thousands of correlations between variables over time and applies machine learning to extract meaningfully predictive risk and opportunity indications.

Sustainalytics developed ESG Signals in collaboration with Advestis, a FinTech company that specializes in machine learning and Big Data techniques for asset management firms. ESG Signals combines seven years of Sustainalytics’ ESG research on more than 1,600 companies with trading and financial data from Advestis to provide heads of research and portfolio managers with a portfolio monitoring, alerting and investment decision support tool.  In addition, asset managers and index providers can use ESG Signals to develop new products. 

Key Benefits

Key Features

  • Identify statistically significant correlations between ESG, trading and financial variables and forward returns
  • Leverage predictive risk and opportunity signals to help inform your investment strategies
  • Rebalance or create new index products
  • Receive a new Excel sheet daily with updated signals
  • Benefit from unparalled client support from the largest dedicated ESG client servicing team in the industry
  • Explicit rules associated with out- or under-performance biases
  • Capacity to detect interactions or synergies between variables
  • Able to uncover the most influent variables
  • Bandwidth to handle more than 500 explanatory variables

How it Works

Sustainalytics delivers a daily Excel spreadsheet with the list of companies and corresponding ESG Signals (opportunity, neutral and risk). ESG Signals are generated based on a set of rules that reflect correlations we have identified between specific ESG factors and the past financial performance of companies. For example, our analysis may identify statistically significant correlations between specific best practices in the field of corporate governance and financial performance. These correlations are then codified into rules used to generate the ESG Signal. The rules are updated every six months.

Test Case and Results

Sustainalytics and Advestis applied ESG Signals to a large cap, market-weighted index. The index was changed and three ESG strategies were applied: normative exclusion, best-in-class selection and a combination of the two. The graph below shows the performance of the combined strategy against the base index. The reweighted indices over performed the benchmark between 110 and 430 basis points, depending on the frequency of rebalancing adopted.

Overperformance relative to the base index

chart

Internal calculations done using data from Sustainalytics and Advestis. Caution: Past performance is not an indicator of future performance. 

 

Copyright ©2016 Sustainalytics. All rights reserved.

Nothing contained in this content shall be construed as to make a representation or warranty, express or implied, regarding the advisability to invest in or include companies in investable universes and/or portfolios. The performance represented is historical; past performance is not a reliable indicator of future results and results and the information provided in this content is not intended to be relied upon as, nor to be a substitute for specific professional advice and in particular financial advice. The information is provided “as is” and, therefore Sustainalytics assumes no responsibility for errors or omissions. Sustainalytics accepts no liability for damage arising from the use of this content or information contained herein in any manner whatsoever.

Learn more about ESG Signals:

Brochure 

Whitepaper

Press Release