The role of data in ESG &
impact investing
Integrating ESG Data
Dario Popadic, Quantitative Analyst 4F Equities
13 June 2019, Amsterdam
2 Confidential | Investec Asset Management
General risks
The value of investments, and any income generated from them, can fall as well as
rise. Where charges are taken from capital, this may constrain future growth.
Past performance is not a reliable indicator of future results. If any currency differs
from the investor's home currency, returns may increase or decrease as a result of
currency fluctuations.
Investment objectives and performance targets are subject to change and may not
necessarily be achieved, losses may be made.
Target audience
This document is being provided for informational purposes for discussion with
institutional investors and financial advisors only. Circulation must be restricted
accordingly.
Nothing herein should be construed as an offer to enter into any contract, investment
advice, a recommendation of any kind, a solicitation of clients, or an offer to invest in
any particular fund, product, investment vehicle or derivative.
3 Confidential | Investec Asset Management
Agenda
1. Responsible Investing at Investec Asset Management
2. How we use RepRisk
3. Early Findings of Empirical Research
4. Working towards a tailored ESG Quant solution
4 Confidential | Investec Asset Management
Responsible investing at Investec Asset ManagementWe monitor, evaluate and actively engage or withdraw investments with the aim of
preserving or adding value to our clients’ portfolios.
Develops
ESG
approach
Therese
Niklasson,
Global Head of
ESG, joins
Joins Principles
for Responsible
Investment
(PRI)
Establishes:
● Investment
Governance
Committee
● Stewardship
policy
● Ownership and
proxy voting
guidelines
Signs UK
Stewardship
Code
Evolves
integration
programme
Signs SA
CRISA
Code
Formally sets
up ESG team
Sets up
Investment
Sustainability
Forum
Expands
exclusion
policy
Establishes
exclusion
principles on
cluster
munitions
Expands
ESG
team
Develops
ESG tools for
investment
teams
Integrates climate
change statement
within stewardship
policy
Expands
private markets
expertise
Appoints
Head of
Engagement Publishes first
integration
progress
report
Publishes second
integration
progress report
Enhances
transparency
and disclosure
with Annual
Stewardship
reportOnboards
external
data
provider
Sets up
ESG
integration
framework
Launches first
Sustainability
fund
Creating sustainable
investment solutions
Ensuring ESG is integrated across all
of IAM’s investment strategies
Ensuring we are active
stewards of capital
2016 2017 20182014 20152009 2010 2011 20122008 2013 2019
Launches
second
Sustainability
fund
Source: Investec Asset Management, May 2019.
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Source: RepRisk, May 2019.
● We use a number of external ESG data and research sources that are intended to
complement fundamental research
● In a world where externalities are being internalized, the quality of data becomes increasingly
important
● We have built internal tools and scoring systems that are powered by independent research
and data
RepRisk’s focus on capturing adverse information, the differentiated approach and its fast
moving and event-driven data makes it a core component of our ESG analysis. The increased
granularity through assigning risk incidents to categories allows us to perform a deeper
analysis and hence get more out of the data than simply ESG scores.
RepRisk helps us: 1. Analyse ESG issues
2. Build proprietary models
3. Monitor portfolio’s ESG profile and discuss external risk
How we use RepRiskRepRisk’s proposition
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Source: RepRisk, May 2019.
RepRisk focuses on assessing companies' reputational risk and monitoring ESG issues
based on sources external to a company. It is differentiated and complementary to the more
traditional, research driven ESG ratings such as MSCI.
● RepRisk attaches each risk incident to the issuer according to 28 ESG issues, which map
onto the Ten Principles of the UN Global Impact
● Relevant data from over 80,000 public media and stakeholder sources every day are
screened
A risk metric called RRI (RepRisk Index) is attributed to each company, ranging from 0
(lowest) to 100 (highest). The RRI is calculated regarding the number of issues, severity and
novelty of risk incidents on a daily basis.
RepRisk Methodology
7 Confidential | Investec Asset Management
Thai authorities to pursue
investigation into Rolls-Royce
Assigned:
● Medium level of reach (Level 2)
● Medium level of severity (Level 2)
1. Screening of news
2. Identification of E S or G issues
3. Assigned levels of:
● 80 000 news sources in 20 languages
● Keywords scanned related to ESG issues (UNPRI)
● Reach: How influential the source is and how widely read
● Severity: Scale of the issue and level of criticism
Keywords linked to issues:
● Violation of national legislation (G issue)
● Corruption (G issue)
Methodology Example: Rolls Royce
Source: RepRisk, May 2019.
RepRisk Example Flag
8 Confidential | Investec Asset Management
Source: Investec Asset Management 4Factor, Date: 01 Jan 2007 – 31 Dec 2017.
Number of issues is an insightful metric
number of issues / month
Highlights increased likelihood
Likelihood of negative outcome vs number of issues over various holding periods
difference between
the two groups
● The higher the number of issues, the more likely that there is a negative outcome
● The likelihood increases with time
Holding period
A look into the dataHow well would a portfolio have done by avoiding the companies with high number
of issues?
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Source: Investec Asset Management 4Factor, Date: 01 Jan 2010 – 31 Jul 2018.
Cumulative return profiles for the low / high number of issues and comparison across
multiple holding periods
Low # of Issues
High # of issues
Universe
* The distribution of the total number of issues that are recorded each month is
skewed. For example, it is most common to have two issues recorded in a
month. Therefore, we combine the bottom two tertiles of constituents to form the
low number of issues with the remainder being the high number of issues.
Focusing on high number of issues can help to mitigate ESG risks
Initial backtests
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Source: Investec Asset Management 4Factor, Date: 01 Jan 2007 – 31 Dec 2017.
RepRisk RRI metrics share a similar level of importance
Detailed analysis of RepRisk RRI-score Number of issues
* Average annualised return is calculated as the average across all holding periods (1,3,6,12,18,24 months)
** Scoring: 1 (low), 2 (medium), 3 (high)
Ave
rag
e a
nn
ua
lise
d r
etu
rn %
High Low
RepRisk Index
11 Confidential | Investec Asset Management
● The lack of transparency and a common standard reporting format for companies
presents a major challenge, in particular for a more data driven ESG approach. Third-party
ESG data providers have different scoring approaches which can provide varying views
‒ 125 ESG data providers*
‒ Providers create their own scoring methodologies and sourcing
‒ Risk of incorporating judgement calls of providers into the investment process
● Key differences among providers:
‒ Aggregation and weighting of factors
‒ Data acquisition and estimation
‒ Materiality of factors
● IAM has built a scoring system based on data from various best-in-class providers and
utilises the Sustainability Accounting Standards Board’s (SASB) materiality framework
Working towards a tailored ESG Quant solutionESG Data Challenges
*Source: The Global Initiative for Sustainability Ratings.
Requirement for tailored ESG scoring
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Working towards a tailored ESG Quant solutionESG Scoring Approaches
Source: Investec Asset Management 4Factor, May 2019.
Proprietary Do Good Score aligned with investment process
● The Do Good Score translates information related to a company’s Environmental, Social and
Governance performance into a signal that is ready for practical application in investments. It
links ESG information and investment performance by identifying the financially material
issues
How it works
● The assessment of financial materiality is carried out in two ways, both of which combine to
create the ultimate Do Good Score. Good performance on both inputs mean a company is
Doing Good
(1) Pre-defined mapping of the SASB to identify the material issues
(2) Historical performance of ESG issues per region, sector and size of company
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Working towards a tailored ESG Quant solutionESG Data integration and visualisation
Source: Investec Asset Management 4Factor, May 2019.
ESG visualisation tools help us to get the most out the data
ESG forms a core part in investment decisions and data from various providers is being
integrated into our platforms for:
● Proprietary ESG scoring
● Holistic security level ESG analysis
● Portfolio level scores
14 Confidential | Investec Asset Management
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