While investor demand for portfolios that integrate environmental, social and governance factors has been increasing year on year, the investment community has lacked tools to measure ESG data to identify which companies may be best positioned to succeed in a sustainable world.
The lack of ESG information and inconsistent reporting has also made it difficult to quantify the impact of negative externalities that can stem from investing in certain industries and products.
In light of this landscape Global asset manager Schroders has announced the launch of SustainEx, a proprietary investment tool designed to quantify social and environmental impacts across individual companies, industries, and geographies.
It is the first framework that attempts to translate social and environmental impacts into financial costs or benefits. Through this platform, investment teams will now have access to a systematic and quantitative measure of sustainability risk that can be applied across investment strategies
This chart shows the combination of net earnings and social and environmental costs or contributions in each sector, based on SustainEx modeling. The dark blue bars represent the profits of each sector and the green bars the offsetting externalities, most of which are negative. While all sectors are at least slightly profitable currently, close to half would become loss-making if invoiced for their social and environmental impacts.
In total, the analysis found that the earnings generated by listed companies for shareholders approximately amounting to $4.1 trillion, would fall by 55% to $1.9 trillion if social and environmental impacts crystallized as financial costs. The risk to profits and competitive positions is clear. One-third of companies would become loss-making.
SustainEx combines economic logic with sustainability expertise, industry knowledge, company data, and academic research to deliver a transparent, impartial and robust measure of corporate impact across around 9,000 global companies. It analyzes over 47 measures of social and environmental impact, examines over 400 academic and industry studies and reviews over 70 available company-specific data points, as well as leverages unconventional data from relevant public sources. The SustainEx model then calculates an annual cost or benefit created per $100 of revenue the company produces.
Schroders investment professionals across asset classes are taking the results of the model into account, in addition to Schroders’ existing toolkit of Environmental, Social and Corporate Governance analyses and frameworks.
For example, SustainEx is a core component of Schroders’ recently-launched Sustainable Multi-Factor Equity (SMFE) strategy, with its analysis helping investors navigate the growing impacts from social and environmental change. Schroders’ SMFE is a systematic equity strategy with a fully integrated approach to sustainable investing. It is designed to provide investors with ongoing access to the best thinking in two increasingly important fields of investment: factor investing and sustainability. The strategy has raised $1 billion globally since launching in September 2018.
Further information about Schroders can be found at www.schroders.com/us.