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  • How Investors Integrate ESG: A Typology of Approaches

    Sarah Cohn    Kevin Ranney, Trevor David, Doug Morrow, Martin Vezér
    07 Jun 2017
    4135
    67

    The Investor Responsibility Research Center Institute (IRRCi) commissioned Sustainalytics to develop a report, How Investors Integrate ESG: A Typology of Approaches. The report examines how investors integrate ESG factors into their portfolios, finding that investors are leveraging a diverse set of integration strategies. Based on an analysis of the investment practices of 70 institutional investors with total assets under management of $19.9 trillion, the report presents the first-ever typology for classifying the approaches investors are taking to integrate ESG factors into their investment processes. 

    The report classifies ESG integration approaches along three dimensions: management (who is integrating ESG), research (what is being integrated), and application (how the integration is taking place). Each dimension includes key differentiators – for example the degree of centralization of ESG functions within an organization, or the degree to which macro-level sustainability trends (as opposed to individual company ESG factors) are integrated – as the basis for distinguishing between approaches. The report authors used the typology to identify six prevailing approaches of ESG integration in the market today: 1) The Believer, 2) The Cautionary, 3) The Statistician, 4) The Discretionary, 5) The Transition-Focused, and 6) The Fundamentalist.

    The report also includes several high-level observations about the current landscape for ESG integration, including:
     
    • Despite the continued groundswell of investor interest in ESG, limitations defined in investment mandates may be constraining ESG integration.
    • A growing number of large investors are paying increased attention to companies’ sustainability impacts and how these impacts may generate systemic risks that can jeopardize economic value.
    • Access to ESG research and public commitments to consider ESG issues do not necessarily ensure that ESG information is integrated into investment decision-making.
  • Strengthening Corporate Governance in the Japanese Market

    Sarah Cohn    Doug Morrow, Martin Vezér, Martin Wennerström
    07 Jun 2017
    361
    12

    Sustainalytics' ESG Spotlight report titled, Strengthening Corporate Governance in Japan, summarizes the changing corporate governance landscape in Japan, headlined by Japan's Stewardship Code and Japan's Corporate Governance Code.

    Our research assesses 450 Japanese firms and finds significant differences in the corporate governance adaptability of Japanese industries and firms. Specifically, diversified financials stands out as the industry best prepared to adapt to Japan’s shifting corporate governance environment.