Navigating the World of ESG Investing

Author: NICSA

Whether they’re seeking to ensure profitability or guarantee that their investments reflect their values, investors are increasingly considering environmental, social and governance (ESG) factors in their decision-making processes, making fund-level transparency vital.

“We’re seeing demand for more transparency around ESG to aid in product selection as well as the due diligence process,” Larry Lawrence, Executive Director, ESG Products, MSCI, told NICSA members during a February 21 #WebinarWednesday session on the topic.

Lawrence said understanding ESG objectives is crucial in designing the right solutions. Those objectives, he said, are typically driven by values, impact and integration. A values-driven approach is seen in investors who want to align their portfolio with their ethical, religious or political views. “A basic example is ‘I want to exclude all tobacco stocks from my portfolio,” Lawrence said.

A more recent phenomenon is the impact-driven approach, where investors seek to generate measurable social or environmental benefits alongside financial returns. “Investors look at ESG datasets as a way to help measure the impact of their investments in their equity portfolios,” Lawrence said.

Finally, an integration-driven approach makes up the largest segment of ESG objectives. “Here, investors look at ESG through a financial-motivation lens,” Lawrence said. “They want to incorporate ESG criteria to help them enhance long-term value or returns and to manage financial risk.”

To evaluate these diverse objectives, investors are turning to tools to measure, rank and screen based on factors such as carbon footprint, ESG risks, sustainable impact solutions and controversial business activities. These may include whether a fund has exposure to sustainable impact companies, how aligned a fund is with specific values and investments and whether there’s significant risk exposure.
An Industry Increasingly Seeking ESG Metrics

“One of the dimensions we have increasingly heard over recent years that clients have consistently asked us to help them measure is ESG,” said Stephanie Clarke, Senior Vice President, Global Market Intelligence, Broadridge Financial Solutions, Inc.. Clarke oversees the company’s global market intelligence platform, a data and analytics tool for asset managers and research firms. Broadridge’s clients include the world’s top asset managers, and Clarke’s aim is to help them measure the industry and categorize it by relevant dimensions.

Clarke said Broadridge is particularly interested in the dynamics of the cross-border market for ETFs and mutual funds. “The cross-border market is $6.5T in assets under management and 11K funds,” she said. “The reason it is so interesting to us is because it has seen phenomenal growth.”

She noted that the industry is increasingly seeking information on ESG metrics that correspond with top performance, as she demonstrated during the presentation with data on the cross-border market. “This is what we’re doing in conjunction with MSCI — trying to give more clarity, more transparency to the industry on how these funds that are performing well can be measured in these various different dimensions alongside the more traditional measures that you see, such as total AUM or net sales.”

NICSA thanks Broadridge for sponsoring this webinar. MSCI ESG Research, a major provider of ESG ratings and data, recently integrated its ESG Fund Metrics tool within the Broadridge Global Market Intelligence platform. The partnership is helping asset managers efficiently leverage ESG datasets to enhance transparency.

NICSA members can view an archived version of the session by clicking here.

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