Resource Center

In this report, we look at the potential synergies between Sustainalytics’ ESG Risk Ratings and Morningstar’s Economic Moat Rating. As a part of our research, we constructed a back-testable investment strategy and portfolio by segmenting stocks with low ESG risk and a wide moat. While both metrics worked independently, they performed exceptionally well in combination.

The ESG Risk Ratings measure the degree to which a company’s economic value is at risk driven by ESG factors or, more technically speaking, the magnitude of a company’s unmanaged ESG risks. A company’s ESG Risk Rating is comprised of a quantitative score and a risk category.

In recent months, the Sustainable Finance Disclosure Regulation (SFDR) has been sparking almost as much debate as the EU Taxonomy – both cornerstone regulations of the EU Sustainable Finance Action Plan. With the SFDR set to redefine ESG disclosures and make a significant impact on financial market participants in Europe, the short timeline and ambiguity on several vital details are creating confusion and concern in the industry. The risk of organizations not being able to comply in time is still present, despite the announced delay in timelines for the technical standards, as is the risk of high financial and operational costs for the industry.

Given the ESG impacts often associated pipeline projects, it is reasonable to say that pipelines have been a source of controversy in North America and around the world. In 2020 alone, several major pipeline projects face high levels of public and community-based opposition; with consequences including widespread protests (as was the case for TC Energy’s Coastal GasLink project at the beginning of this year) and large-scale regulatory and legal challenges (as seen currently with the Dakota Access Pipeline).

NN Investment Partners (NN IP) is the asset manager of NN Group N.V., a publicly traded corporation, headquartered in The Hague, the Netherlands. NN Investment Partners offers specialized SRI funds and tailor-made responsible investment solutions that meet the growing demand for products that generate good financial returns and at the same time have positive impact on society.

Over the last decade, portfolio managers worldwide have been increasingly convinced that incorporating environmental, social, and governance (ESG) criteria into investment decisions could provide better risk-adjusted returns. As a result, responsible investing, has moved from a niche activity to the mainstream. As more capital shifts to ESG products, there have been discussions regarding the risk of an ESG bubble as stocks with good ESG scores have enjoyed price appreciation and sometimes go beyond fundamentals[i].

Our Thematic research report, Understanding ESG Incidents: Key Lessons for Investors, provides a complete exploration of Sustainalytics’ incidents collection framework and offers comprehensive insight into company activities that generate undesirable social or environmental effects.

Aberdeen Standard Investments, Sustainalytics and the University of Oxford Smith School of Enterprise and Environment have published “Smart Beta and ESG: Promoting sustainability in smart beta investment strategies”.

“We are living in extraordinary times” seems to be these days’ mantra. It certainly reflects well the dynamics of global share markets, including Australia’s, as shown in the chart below.

Sustainalytics’ new ESG Spotlight Series report, The COVID-19 Incidents Curve: Corporate Events and Impacts, explores emerging ESG trends related to COVID-19 corporate incidents tracked since January 2020.

Sustainable financial products are marked with an increasingly large list of tags, from green, sustainable, socially responsible to thematic ESG, water, carbon or impact funds, and not every investor might know how to make sense of these terms. Sustainable fund labels can be one way to signal to the market that the fund has a dedicated responsible investment strategy.

This report, How Investors are Integrating ESG: A Typology of Approaches, classifies ESG integration approaches along three dimensions: management (who is integrating ESG), research (what is being integrated), and application (how the integration is taking place). The authors then used the typology to identify six prevailing approaches of ESG integration in the market today.

The COVID-19 pandemic is likely to further amp up the market’s interest in ESG investment research. It’s not just that ESG funds and indices have generally outperformed their non-ESG counterparts since the COVID-19 sell-off began in mid-February.[i] It’s also that the pandemic itself has drawn attention to ESG issues ranging from biodiversity and habitat loss to employee relations and supply chain management.

In this report, the first in Sustainalytics’ new Portfolio Research series, we offer analysis about where investors can get the biggest “ESG bang for their buck” as they navigate the COVID-19 market recovery.

This year, we mark Earth Day under a pandemic. To date, casualties of the novel coronavirus include more than 170,000 deaths, ongoing disruptions to healthcare systems and a deep economic downturn. As we face the first global recession in a decade, Earth Day – the theme of which this year is climate action – serves as a reminder for investors to reflect on how their investment activities relate to social and environmental health concerns.

The highly anticipated final report by the TEG (Technical Expert Group) on the EU Taxonomy was published in early March, followed by a stakeholder information session. You can read our blog post on last fall’s developments here.

Monday’s rout of the global equity market has left investors reeling. Major benchmarks including the S&P 500, FTSE 100 and the DAX were down well over 7%. In Canada, the commodities heavy TSX Composite shed over 10%.

In 10 for 2019: Systemic Risks Loom Large, we offer a forward-looking view of significant ESG issues that could affect global investment portfolios in 2019. Applying Sustainalytics’ ESG Risk Ratings framework, we identify a selection of subindustries with high levels of unmanaged risk and profile 10 firms with leading ESG management practices and low levels of unmanaged ESG risk.

The proposed Taxonomy is a classification tool to help investors and companies make informed investment decisions on environmentally friendly economic activities. It is a list of economic activities, which defines performance criteria for six environmental objectives.

In the second installment of our ESG Risk Ratings white paper series, we assess the unmanaged ESG risk of 42 Internet Software and Services (ISS) companies. In addition, the report offers a comprehensive ESG risk analysis of the subindustry and concludes with a case study of Facebook.