KBI Global Investors, the Dublin based boutique that is part of the Amundi group, has launched a data mapping solution to provide improved metrics on the impact of investment processes that incorporate ESG factors.
The manager said the mapping was developed in response to the rapid growth of its responsible investing solutions and increasing demand expressed from investors for more granular insight into the impact that investment decisions are having in respect of the UN Sustainable Development Goals.
The 17 SDGs have become increasingly bound up in discussions around the objectives of impact investing and strategies that specifically incorporate ESG into all levels of the investment process, suggested Eoin Fahy, head of Responsible Investing at KBIGI.
The mapping consists of, for example, looking at the constituent holdings of the manager’s water strategy, and breaking each one of them down into their constituent business parts. These are then mapped against the 17 SDGs to identify a “positive impact”, “neutral impact” or “negative impact” score. By measuring companies at this level it is possible to build up a quantifiable adherence to the SDGs of any particular investment. KBIGI’s approach looks to identify the proportion of revenues of each constituent company that related to achieving SDGs, and can then create an overall score for the strategy based on the existing holdings.
The proprietary mapping exercise on the water strategy took some six months to generate the numbers that can be used to provide investors with a quants score. This can be used to assess the degree to which the ESG promises being made by individual companies are being adhered to in respect of the SDGs. And because the SDGs have been agreed by governments globally, they provide a benchmark against which to gauge impact at the mico level when building a bottom up investment case, KBIGI notes.
Noel O’Halloran, CIO at KBIGI, cited the importance of integrating ESG in the investment process. He said that the Volkswagen ‘Dieselgate’ scandal had been avoided because the manager’s portfolios had not held shares in the German company because of concerns around governance issues.
Building better metrics to share with investors also answers questions, concerns and fears around so called greenwashing, as levels of interest in ESG derived strategies continues to build. For example, when discussing impact investing, it is not enough to look to inputs into investment decisions, but it is also necessary to consider the societal goals that impact strategies say they seek to address. Investors increasingly want quantitative measurements of the impact that such investing targets, which creates the link to the UN SDGs, which are a way to actually measure achievements, O’Halloran said.
He added that incorporating ESG factors into investment decisions provided better returns.
“ESG is in our DNA, and we’be been doing it for 18 years,” he said.
Besides investor demand for better metrics, Fahy pointed to other developments as reasons to push ahead on improving the ability to quantify impacts of investment decisions.
Many of the world’s biggest investors, such as sovereign wealth funds, are looking to the SDGs. Meanwhile there are regulatory changes pending that will likely provide impetus to commitments to ESG; the European Commission’s recent announcement that it would be accepting a set of proposals from the High Level Expert Group on Sustainable Finance will accelerate moves to adopt investment strategies that meet sustainability goals, Fahy said.
Ironically, within 5-10 years, it is likely that people will not be talking about ESG any more because it will be the mainstream, Fahy added.
Meanwhile, there is a clear trend, said O’Halloran, who pointed to decisions in the US – which accounts for a key proportion of KBIGI’s overall business – by the likes of pension funds in California and New York pushing for divestments from stocks that do not meet ESG/impact/sustainability objectives. There is also increasing scrutiny of company annual reports as part of this trend.