The ESG Risk Ratings: Potential Applications for Investors
In September 2018, Sustainalytics introduced our flagship ESG Risk Ratings and published a series of white papers to help our clients understand the new ratings. The first report in the series focused on our next generation ratings approach, while our second provided a subindustry-specific discussion of our ratings. With our third ESG Risk Ratings white paper, we explore how investors could potentially apply the ESG Risk Ratings to their investment processes. Below are some key takeaways from the white paper. To learn more, register for our regional webinar using the buttons at the bottom of the page.
The ESG Risk Ratings proved useful in creating industry tilts that investors could potentially use to address the differences in industry-level ESG risk.
We investigate the relationship between estimated WACC values and ESG Risk Rating scores for 3,542 companies and build a model to capture ESG risk premiums in discounted cash flow analysis.
ESG Risk Ratings scores can be combined with fundamental inputs including dividend yield in a rules-based portfolio construction process.
We create 48 distinct best-in-class portfolios and use the Carhart model to test for statistically significant alpha.
Using the concept of unmanageable risk, we construct an innovative screening strategy that removes companies in 18 high-risk subindustries.
By blending the ESG Risk Ratings with Sustainalytics’ Sustainable Products Research, we develop an integrated portfolio strategy that combines positive impact with ESG risk minimization.
We illustrate how the ESG Risk Ratings could potentially be used by investors to enhance their engagement processes.
