Every day, more institutions are integrating more types of environmental, social and governance (ESG) factors more deeply into their investment and stewardship programs. This integration is happening in a variety of ways that reflect regulatory and reporting requirements, investor and consumer expectations, and the potential for improved returns.
How, exactly, these factors get integrated varies depending on the specific objectives of the institution in question. In some cases, an ESG lens provides another layer of screening to protect returns, for example against potential reputational damage (just ask investors at Activision, Amazon, Boohoo … the list goes on). In others, promoting areas of non-financial performance is the goal in and of itself, with the firm or fund constructing a portfolio around specific environmental or social metrics.
These considerations can be used to compare the specific impact of alternative investment options; to assess risk across the entire portfolio; to set institution- or fund-wide goals, often aligned with broader global climate or social objectives; or to drive an institution’s active ownership and engagement programs.
Even for institutions that may not put a strong focus on environmental and social issues, ESG issues are nonetheless becoming increasingly relevant to meeting their stewardship obligations, particularly through reporting and proxy voting. Initiatives like the PRI and new regulatory frameworks, such as the EU’s Action Plan, require investors to demonstrate responsible stewardship related to ESG issues, and the SEC’s recent announcement that it would be updating disclosure rules for how ESG is incorporated into investment products follows similar action in the UK and Europe.
While environmental, social and governance topics have long been addressed via shareholder proposals, the scope of those proposals has expanded in recent years, and management has even begun submitting their own climate plans for shareholder approval. Moreover, some institutions are basing their board and compensation voting decisions on sustainability considerations – for example, CalSTRS has targeted directors on boards with insufficient gender diversity, and last year Rio Tinto saw its remuneration report rejected in part over concerns about how it handled the Juukan Gorge disaster.
Whether it is being used to make investment decisions via exclusionary or inclusionary screening, to determine targets and strategies for an engagement program, or simply to meet relevant stewardship and reporting obligations, ESG is increasingly central to many institutional investors. Yet reliable, timely and transparent data has proved a challenge.
Integrating ESG considerations requires specialized analysis. While reporting standards are now coming into harmony, the process of gathering, aggregating and analyzing all of the relevant information can prove a strain even for large institutions. That can leave investors heavily reliant on opaque external models fueled by data of questionable freshness and provenance.
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Glass Lewis addresses the need for accurate, timely data with its ESG Profile Page, providing a wide range of company-specific data points and a transparent, proprietary ESG score in its Proxy Papers. The underlying data can also be delivered directly via our ESG Data Feed solution and leveraged for in-house analysis, including the creation of ESG models, scoring, investing decisions, or proxy voting decisions.
The Profile and Data Feed provide critical information on how companies are mitigating climate risk and how their ESG oversight, policies and disclosures stack up against best practices and market norms. The information collected includes data points associated with Board Accountability, ESG Transparency, ESG Targets and Alignments, and, for certain companies, Climate Risk Mitigation.
It’s as up-to-date as possible for proxy voting, with data collected in the run-up to a company’s annual meeting, usually between 21-30 days prior; transparent – our ESG Profile methodology provides insight into all of the data points collected and how we calculate a company’s score based on their alignment with a core set of ESG factors; and reliable, with public companies getting the opportunity to verify their data through Glass Lewis’ Issuer Data Report program.
Click for more information on Glass Lewis’ ESG Profile and Data Feed, or get in touch to learn about our other ESG and stewardship solutions.