Investors are demanding a consistent approach to ESG across the investment spectrum. Developed as an engagement overlay to Sustainalytics’ flagship ESG Risk Ratings, Material Risk Engagement promotes and protects long-term value by engaging with high-risk companies on financially-material ESG issues.
The focus is on companies with the highest unmanaged ESG risk, as identified by the ESG Risk Ratings. We protect and develop the value of our clients’ portfolio companies through collaborative and constructive engagement that help companies better identify, understand and manage these ESG risks.
Key Features and Benefits
Engagement with over 250 high-risk companies on the most financially material ESG issues – as identified by Sustainalytics’ ESG Risk Ratings.
Consistent engagement on a global scale in alignment with our comprehensive ratings universe covering > 4,500 companies.
With ~ 30 engagement managers Sustainalytics has a diverse and experienced team dedicated to issuer engagement in collaboration with institutional asset owners and asset managers.
Refined over more than 25 years, we follow a robust and proven approach to ESG engagement with face-to-face interactions, well-defined objectives and a strategy for each case.
Covering more than 2 trillion dollars in assets under advisement (AuA), Sustainalytics is the largest engagement services provider, enabling us to leverage our pooled resources to increase our impact.
Unparalleled transparency with the option to attend engagement dialogues and access all ESG information, including company responses.
ESG Risk Management
Material Risk Engagement focuses on high-risk holdings, aiming to help companies better identify, understand and manage ESG risks. With Material Risk Engagement, investors gain better insight to ESG risk and adopt a proactive ESG risk management tool.
The assessment of responses and progress as well as other data points can improve investors’ insight into companies’ readiness and ability to mitigate ESG risks and opportunities.
Positive engagement cases are consistently tracked, which enable investors to report positive impact from the engagement to clients and beneficiaries. Engagements are also mapped against the Sustainable Development Goals (SDGs).
Engagements address material ESG Issues that may end up on companies’ AGM agendas, making case information a useful input for voting decisions.
Compliance with Stewardship Codes and International Guidelines
Engagement facilitates a key element of various guidelines and frameworks designed to help investors be responsible owners with focus on risk and materiality. Examples of these recognized guidelines include the Principles for Responsible Investing (PRI) and the OECD’s Responsible business conduct for institutional investors, as well as relevant regulations, such as the UK Stewardship Code.
Engagement Overlay for Passive Strategies
By consistently engaging with all of the highest risk companies on various indexes, Material Risk Engagement provides passive/index investors with the opportunity to meet their stewardship obligations and differentiate their fund with a comprehensive engagement overlay.
How it Works
As soon as a company in the worst-performing half of its industry is assigned a risk rating score above 32, which indicates that it is either in the high or severe risk category, the Material Risk Engagement process commences.
First Meeting With Company
The first meeting with the company is preferably face-to-face to build a common understanding of the company’s material ESG issues, creating the trust that is key for our collaborative engagement approach.
Based on the first meeting, the engagement team defines a change objective and an engagement strategy. The company also receives the first set of suggested actions to address management gaps in the Material ESG Issues.
Sustainalytics regularly follows up with the company and tracks progress on action points and positive developments. Change objective and suggested actions are updated regularly to ensure continuous improvement.
Engagement Case Closure
An engagement case is closed when the company’s ESG Risk Rating improves to below a score of 28, or the company’s rating improves to the top 40% of its industry.
Sustainalytics’ user-friendly investor interface provides full insight into a company’s engagement profile, overall ratings and dialogue. It also includes engagement manager commentary on the case, next steps and upcoming meetings.
Basic data points can be delivered as a standard portfolio report in Excel or as a data feed.
A Single Market Standard
Consistent approach to ESG assessments across the investment spectrum.
Award-Winning Research and Data
Firm recognized as Best ESG Research and Data Provider by Environmental Finance and Investment Week.
End-to-End ESG Solutions
ESG products and services that serve the entire investment value chain.
25+ Years ESG Expertise
350+ ESG research analysts across our global offices.
Largest Second-Party Opinion Provider
As recognized by Environmental Finance and the Climate Bonds Initiative.
Related Insights and Resources
Royal Dutch Shell Court Order Shifts Paradigm for Corporate ESG Accountability
On 26 May 2021, the Court of The Hague orders Royal Dutch Shell (RDS) to reduce CO2 emissions to a net 45% by the end of 2030 compared to 2019 through the Group Policy of the Shell Group. The order of a national (Dutch) court demands that a global company (RDS) fulfills its obligations under the Paris Climate Agreement, although RDS was not a party in that agreement, and there is no legal equivalent in The Netherlands. What are the broader consequences of this order, also globally and for other companies and potentially also other jurisdictions?
Banks Embrace Corporate Culture as Change Agent
Corporate culture is not automatically positive, and elements of a company’s culture may provide certain benefits or disadvantages to a firm’s competitiveness. When acknowledged, corporate culture can be used as a tool to drive better business outcomes and manage conduct and compliance risk. Our discussions with companies show that corporate culture can have a dominant effect and influence behaviour over and beyond stated company policies and programs.
2020 Material Risk Engagement Annual Report
Material Risk Engagement helps investors promote and protect their long-term value by engaging with high-risk companies on their financially material ESG issues. This inaugural Material Risk Engagement annual report covers ten months since its launch in March 2020. Read the report to learn more about:
Bringing Investors and Companies Together to Address the Climate Change Crisis
As Earth Day is around the corner on the 22nd of April, the Biden Administration is to convene a global climate summit. Following a historical precedent for several such events, since its inception in 1970, including signing the landmark Paris Agreement . We have seen positive developments since the Paris Agreement; societal actions to address some of the root causes of climate change have yet to suppress the negative trends . Historically, active ownership on climate change has focused on direct emissions from highly exposed sectors, such as fossil fuel and utility companies. However, the more complicated, less direct aspects of climate change have seen limited progress. Tackling such issues will see a strong need for collaboration from both countries and other key sectors, in particular, banking and finance. Banks are key to support this transformation; facilitating economic activity for positive change throughout the entire value chain is key.
Take a coherent and consistent approach to assessing financially material ESG risks.
Engage with companies that breach international norms and standards as identified by our Global Standards Screening research.