Monthly column from Global Equities on sustainability investing. Head of ESG integration Masja Zandbergen questions whether ESG ‘snapshot’ scores give the full picture about a mutual fund’s sustainability.
As responsible investment is growing and more and more investors are incorporating sustainability or ESG – whatever you want to call it – into their investments, the need arises to separate the wheat from the chaff. The good from the not so good. To fulfil this need, many market participants are coming up with solutions to measure the ESG profiles of investment funds.
This approach usually starts with measuring the ESG scores of the portfolio holdings and comparing them to peers. Sometimes this is supplemented by including the past controversies of the companies owned, along with their carbon footprints. The end result is a score or rating which provides some insight into how the companies that are currently held in a portfolio score on sustainability.
The good thing about these ratings is that they can be produced at relatively low cost for relatively large numbers of funds. The best thing is that they raise ESG awareness. The question remaining, however, is whether they actually achieve the desired outcome.
The point is that investing means looking forward, but these ratings only provide a snapshot of the current situation. If there is no clear sustainability investment policy for the fund, then an investor can buy into a portfolio that is highly ranked, only to discover after a few months or years that the score has completely changed.
So, these methodologies are merely a starting point that is far from perfect. I would suggest a few points that would really improve these ratings:
By only analyzing the portfolio outcome, you are starting at the end. Instead, the investment approach and process should be the starting point of the analysis. Let’s not forget what we are trying to achieve here: if it is better investment returns or lower risk by using ESG information, then this is what we should measure.
If making a positive social and environmental impact, then impact measurement should be used instead. Mixing both investment goals into a one-size-fits-all approach is not the best idea, and certainly not when it distracts from the real hard work – namely analyzing the impact of sustainable development on a company’s business models and prospects, and discussing the way forward with them.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/Robeco Switzerland product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.