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ESG Risks: Identification and Evaluation

Identification and pricing of ESG risk, implementation of ESG processes and evaluation of asset managers

Given the breadth of the environmental, social, and governance topic itself, ESG risks can take on a wide variety of forms.  One can easily draw parallels between identifying material ESG characteristics and identifying ESG risks facing corporations.  But the devil is in the details, with many specific ESG risks requiring another level of analysis in order to be evaluated, integrated into internal models, and managed appropriately.

On the identification front, MSCI looks at using alt-data to spot additional ESG risks.  Hermes and other investment managers discuss the integration of ESG risks into their proprietary models.  And several other papers focus upon environmental risks such as plastic waste, climate change, and corporate carbon footprints. 

esg risks

Using alternative data to spot ESG risks (MSCI blog, 2019)

ESG disclosures by corporations are on the rise, but investors may still lack an understanding of which ESG characteristics and risks are financially relevant. This paper aims to help investors use alt-data to better understand ESG risks and the ESG-related vulnerabilities within their portfolios.

Pricing ESG Risk in Sovereign Credit (Hermes IM, 2019)

Hermes previously released some research on the link between ESG characteristics and corporate credit spreads. In this report, jointly produced with Beyond Ratings, they apply a similar analysis to sovereign credit.

What to Look for on the Road to ESG (Intech, 2019)

For compliance reasons, this paper is only accessible in certain geographies

Intech introduces a framework that is goals-based for ESG investors, and also discusses the things to consider when evaluating ESG managers and their performance.

The impact of ESG momentum on valuations (Lyxor ETF, 2019)

For compliance reasons, this paper is only accessible in the UK & Europe

Can investors do well by doing good? WIth the rise of ESG, investors are increasingly pursuing more responsible agendas, but this may not have to come at the expense of good returns.

Is there another Woodford waiting to happen? (MSCI blog, Jul 2019)

Should investors be concerned about liquidity constraints for UCITS funds in Europe, given what happened with the Woodford Equity Income Fund recently?

Pulling away: Inequality as an ESG risk (Fidelity International, Apr 2018)

For compliance reasons, this paper is only accessible in certain geographies

This essay briefly examines the current state of wealth distribution, showing why inequality remains a significant sustainability risk - both at a company level and at a macro level.  

Managing ESG Risk in the Supply Chains of Private Companies and Assets (Principles for Responsible Investment, 2017)

This 31-page guide by Principles for Responsible Investment provides practical initial steps to help investors assess and manage supply chain ESG risk within their portfolio companies. The report explains why ESG factors in the supply chain matter, and how investors can engage with companies on ESG supply chain risk.

Shattering the Glass Ceiling: The Value in Gender Equity (Eaton Vance, 2019)

For compliance reasons, this paper is only accessible in the United States and Canada

In this 28-page report, Calvert calls for increased diversity and inclusion in the workforce, highlighting the material benefits of gender diversity to society as a whole, and providing a detailed analysis of the gender pay gap and female employment globally.

Tackling the plastic age (NN IP, 2019)

The majority of plastics end up in landfills, the ocean or elsewhere in the environment. Committed to engaging for change on plastics, NN Investment Partners has identified three key areas in order to focus on sustainable solutions in: waste management, recycling and future innovation.

A More Traditional Approach to Low Carbon Investing (MFS, 2019)

MFS Investment Management looks at the components of the global carbon footprint and the prevalence of environmental risks, recommending that carbon-conscious investors consider the US large-cap growth universe.

Economic Modeling of Climate Risks (Amundi AM, 2019)

For compliance reasons, this paper is NOT accessible in the United States

Amundi constructs complex general equilibrium models in order to test a variety of shock scenarios related to climate risk, then examines the results.

Sustainable investing in a time of climate change (Manulife IM, Jun 2019)

For compliance reasons, this paper is only accessible in the EMEA region

How can climate analysis be translated into quantifiable portfolio resilience? Manulife examines the quantitative side of climate risk, showing how modeling can drive engagement activities.

ESG and real assets: A matter of balance (Aviva Investors blog, 2019)

For compliance reasons, this paper is only accessible in certain geographies

Aviva looks at five case studies that assess ESG risks in real asset investments. How do ESG risk factors influence investment decision making?

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