ESG Fund Managers Look To Data And Scenario Analysis

Shanny Basar
Fund Managers Look Beyond Regulation

The Covid-19 pandemic may help asset managers frame models for climate risk as they look to more forward looking scenario analysis for environmental, social and governance strategies.

Sharon Fay, co-head of equities and chief responsibility officer at AllianceBernstein, said in a blog that the investment management industry needs climate change models that are more forward-looking.

“The pandemic, with its enforced social distancing and economic shutdowns, has provided a very immediate perspective on how to frame such a scenario,” she wrote.

Fay continued that a common framework to map the potential impact of physical and transitional risks and opportunities  for individual issuer to financial statements can help.

How climate change affects financial statements. Source: AllianceBernstein .

“We can’t let the perfect become the enemy of the good,” Fay added. “For early versions, simply determining the direction of change in risk factors may make an impact, particularly versus passive investing. So, why not roll out these tools as soon as they can help ?”

RBC Global Asset Management

Maia Becker, director of corporate governance & responsible investment for RBC Global Asset Management, told Markets Media that  the Canadian fund manager launched a new climate change strategy in April this year which includes fully integrating climate change into its investment process.

The fund manager performs analyses on a company-by-company basis to assess how they are exposed to climate risk, how they are managing exposure and carries out a climate scenario analysis to understand the financial impact.

Maia Becker, RBC Global Asset Management

Becker said: “This is being rolled out across all our portfolios so we are not just looking at backward data but looking forward to potential risks and opportunities.”

She continued that the firm believes that engaging with companies is one of the most effective ways to bring change.

NN Investment Partners

Hendrik-Jan Boer, head of sustainable investments and senior portfolio manager, sustainable equity at NN Investment Partners, also said proprietary data and engagement are critical for the success of the Dutch fund manager’s strategy.

NN IP’s sustainable equities strategy is marking its 20-year anniversary as it was one of the first strategies of its kind to integrate ESG principles into its investment process according to the firm. The strategy was launched at the time of the establishment of the Millennium Development Goals by the United Nations.

Hendrik-Jan Boer, NN IP

“Despite the many developments in the responsible space, we have not changed our investment approach over the years,” added Boer. “We look for high-quality companies with sustainable businesses and a strong competitive position that behave in a sustainable way. It’s all about finding tomorrow’s winners.”

The European and global strategies have both outperformed their benchmarks over one, three and five years according to the firm. NNIP said: “The strategy has outperformed in all market conditions, demonstrating the merits of a responsible investing approach that focuses on companies with future-proof business models.”

Boer continued that the current Covid-19 pandemic has accelerated trends that already exist in society. He added: “Sustainable investment avoids long-term hurdles to performance and that is recognised in difficult times.”

He said companies with a focus on sustainable solutions will also be well positioned to face the next 20 years and beyond. NN IP has developed a materiality framework which is forward-looking and can be used to assess the impact from  an economic perspective.

“We have put a lot of resources into our proprietary data as an ESG score has limited value on its own,” he said.

Boer added that the lesson learnt over 20 years is that engagement is as important as data to influence the direction of change. He added: “A firm may have a low ESG score but we have the opportunity to engage to help it become more sustainable and this is also an opportunity for alpha.”


Günther Thallinger, member of the board of management of Allianz and Net Zero Asset Owner Alliance, said it should be mandatory for firms to report greenhouse emissions. He added: “We also need a market-based price for carbon emissions which is global.”

Thallinger spoke yesterday on a webinar hosted by the London Stock Exchange Group and the Principles for Responsible Investment as part of a series of events to build momentum ahead of COP26 in Glasgow next year.

Thallinger said: “We actively support engaging companies as they can also reach out to their customers and suppliers.”

The Net Zero Asset Owner Alliance is an international group of 25 institutional investors, representing nearly  $ 4.7 trillion assets under management, which has committed to transitioning investment portfolios to net-zero greenhouse gas emissions by 2050.

This week the United Nations-supported PRI released a report, Investing with SDG Outcomes, to help investors support achievement of the UN Sustainable Development Goals by 2030.

The PRI said its 31% of its signatories (650) have mentioned the SDGs this year, up from 24% last year and 16% in 2018. The organisation will officially update its reporting framework in January 2021 to include initial questions about policies on shaping real-world outcomes and processes used for identifying outcomes related to the SDGs.

Darryl Murphy, managing director, infrastructure at Aviva Investors, a PRI signatory, said in a statement: “Whilst infrastructure development is itself one of the 17 SDGs, almost half of all SDGs will not be met without infrastructure playing a critical role. As investors in the asset class, we feel it’s critical to be fully-aligned with them and to use them as a point of reference to determine how our investments contribute to outcomes that are consistent with those goals.”

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