• 10 for 2018: ESG Risks on the Horizon

    21 Feb 2018

    Sustainalytics' new Thematic Research report, 10 for 2018: ESG Risks on the Horizon, analyzes 10 ESG issues that could pose significant risks for investors in the year ahead. The issues, which fall under four broad themes, are summarized below.

    Climate Change - The great low carbon transition is likely to affect the profitability of oil and gas firms. We examine the performance of the world's 10 largest publicly traded oil majors based on their GHG risk management capabilities. 

    Water Management - Chile's copper mining industry, the largest in the world, faces growing risks from water-driven community opposition. Our analysis shows the water and community risk management capabilities of the largest listed copper producers in Chile. 

    Consumer Protection - Financial services firms could experience increasing costs related to General Data Protection Regulation (GDPR), which takes effect in May. We evaluate the data management capabilities of 10 large European financial companies. 

    Stakeholder Governance - As apparel production shifts from South Asia to Africa, where are the supply chain risks for investors? We assess over 115 firms on their supply chain standards and management practices.

  • Understanding ESG Incidents: Key Lessons for Investors

    Sarah Cohn    Doug Morrow, Martin Vezer, Kasey Vosburg, Andrei Apostol
    05 Jan 2018

    Sustainalytics is pleased to share its Thematic Research report, Understanding ESG Incidents: Key Lessons for Investors. Our study covers 45 incident types and shows where incidents are occurring, and which industries are most involved. We also demonstrate how the findings can be integrated into portfolio strategy, including industry tilts, beta analysis and security selection, and engagement processes. Our research reveals:
    • Quality and safety as well as business ethics are the two most common ESG incident types
    • The banking industry accounts for 19 percent of all incidents, more than twice the amount of the next most exposed industry (food products)
    • Over 40 percent of incidents occur in the U.S. (more than any other country)
    According to our analysis, high-impact incidents are associated with a 6 percent average decline in the market cap of affected companies. Our incident-driven investment strategy also outperformed the global equity market by 11 percent from January 2014 through October 2017. 
  • Game of Bonds: Reassessing Sovereign Credit Ratings

    Sarah Cohn    Martin Vezér,Doug Morrow,Andres van der Linden
    23 Oct 2017

    Sustainalytics has published a new ESG Spotlight Series report, Game of Bonds: Reassessing Sovereign Credit Ratings. In recent years, investors have shown significant interest in incorporating ESG issues into sovereign credit analysis. To build on this interest, we developed an approach for connecting ESG and credit rating agency (CRA) data to identify countries that may be undervalued (e.g. Greece), appropriately valued (e.g. Australia) and undervalued (e.g. Saudi Arabia). We found a positive correlation between countries’ ESG and CRA ratings, and their ESG momentum and GDP per capita growth, supporting the thesis that sustainable countries are safer places to invest.
  • How Investors Integrate ESG: A Typology of Approaches

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

    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

    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.