GUIDANCE AND CASE STUDIES FOR ESG INTEGRATION
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Guidance and case studies for ESG integration: equities and fixed income (2018)
ESG integration in the Americas (2018)
ESG integration in Asia Pacific (2019)
ESG integration in EMEA (2019)
1,100 financial
professionals surveyed
23 workshops in
17 major markets
30+ case studies written by
equity and fixed-income practitioners
PRI partnered with the CFA Institute to create a best-practice report and three regional reports on ESG integration in equity, corporate bond and sovereign debt portfolios.
CFA INSTITUTE PRI COLLABORATIONS
Guidance and Case Studies for ESG Integration: Equities and Fixed Income (2018)
ESG Integration in the Americas: Markets, Practices and Data(2018)
ESG Integration in Europe, the Middle East, and Africa : Markets, Practices and Data (2019)
ESG Integration in Asia Pacific: Markets, Practices and Data(2019)
MAIN STUDY FINDINGS
▪ There is no “one best way” to do ESG integration and no “silver bullet” to ESG integration.
▪ Governance is the ESG factor most investors are integrating into their process.
▪ Environmental and social factors are gaining acceptance, but from a low base.
▪ ESG integration is farther along in the equity world than in fixed income.
▪ Portfolio managers and analysts are more frequently integrating ESG into the investment process, but rarely adjusting their models based on ESG data.
▪ The main drivers of ESG integration are risk management and client demand.
▪ The main barriers to ESG integration are a limited understanding of ESG issues and a lack of comparable ESG data.
▪ Investors acknowledge that ESG data has come a long way, but advances in quality and comparability of data still have a long way to go.
▪ It would be helpful for issuers and investors to agree upon a single ESG reporting standard that could streamline the data collection process and produce more quality data.
▪ Many workshop participants were concerned that ESG mutual funds and ETFs offered to investors may be driven by marketing decisions and may not be true ESG investment products.
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ESG ISSUES WILL GROW IN IMPORTANCE - EQUITES
The impact of ESG issues on share prices in 2017 and the expected impact in 2022
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GLOBAL BARRIERS TO ESG INTEGRATION
Equities and fixed income
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BARRIERS IN SELECTED GLOBAL MARKETS
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United States Netherlands
United Kingdom
Russia
Japan
Australia
Italy
South Africa
China
41% 43%
60%
37%
51%
39%
33%
35%
39%
33%
38%
31%
28%
37%37%52%
51% 44%
48%55% 47%
42%
58%55%
45%
52%
32%
48%30%
38%Brazil
Low client demandNo evidence of investment benefits of ESGLack of historical and comparable ESG dataLack of company culture
Too much non-material information being disclosedLimited understanding of ESG issues/ESG integrationLimited amount of researchConcerns about negative returns, tracking error, and underperforming the benchmark
SOLUTIONS: CLIENT DEMAND
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Client demand is the second largest driver of ESG integration for equity investments after risk management
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SOLUTIONS: LIMITED UNDERSTANDING OF ESG ISSUES / INTEGRATION
ESG integrationFramework
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SECTORS Consumption Financials Health Care InfrastructureNon-Renewable
Resources
Renewable Resources & Alternative
Energy
Resource Transformation
ServicesTechnology and Communications
Transportation
ISSUESENVIRONMENT
GHG emissions
Air quality
Energy management
Fuel management
Water and wastewater management
Waste & hazardous materials management
Biodiversity impactsSOCIAL CAPITAL
Human rights and community relations
Access and affordability
Customer welfare
Data security and customer privacy
Fair disclosure and labelling
Fair marketing and advertisingHUMAN CAPITAL
Labour relations
Labour practices
Employee health, safety and wellbeing
Diversity and inclusion
Compensation and benefits
Recruitment, development and retentionBUSINESS MODEL AND INNOVATION
Lifecycle impacts of products and service
E & S impacts on assets, & ops
Product packaging
Product quality and safetyLEADERSHIP AND GOVERNANCE
Systemic risk management
Accident and safety management
Business ethics & transparency of payments
Competitive behaviour
Regulatory capture and political influence
Materials sourcing
Supply chain management
Issue is likely to be material for more than 50% of industries in sector
Issue is likely to be material for less than 50% of industries in sector
Issue is not likely to be material for any of the industries in sector
SASB materiality map
SOLUTIONS: LIMITED UNDERSTANDING OF ESG ISSUES / INTEGRATION