Refinitiv’s launch of measures assessing the sustainable development performance of individual countries is the latest of a series of services targeted at the burgeoning ESG investing space. The addition allows Refinitiv to offer asset managers and servicers scores that indicate the degree to which funds, corporations and now countries meet the UNs Sustainable Development Goals (SDGs).
The new country scores draw on macroeconomic data from Refinitiv’s Datastream time-series database, and are available to subscribers via the Eikon desktop platform. The scores cover 210 countries, 17 UN SDGs and 148 benchmarked metrics that compose the SDGs. They are calculated on an annual basis using the latest available information, providing an overall SDG level and individual metric level performance scores.
The scores are aimed at helping investors and their advisors understand the ESG footprint of countries, funds and companies for the purposes of investment allocation decisions. Refinitiv has been building its product suite in this area since its acquisition of specialist ESG provider AssetForm almost a decade ago. The past two years has seen an explosion in demand for ESG data as investors flock to investments that take into account environmental, diversity and other social factors.
According to Leon Saunders Calvert, Head of Sustainable Investing, Lipper, and I&A Insights, Refinitiv, this explosion in demand for data is being driven by two main factors. The first is the growth in AUM with explicit mandates for investing in sustainable assets, along with the usual risk/reward considerations. The second is demand from asset managers and servicers who haven’t explicitly articulated this sustainable mandate but need the data to manage their risk/valuations.
Assessing investments for their ESG credentials can be complex. Saunders Calvert points out that ESG covers a range of thematic issues, and this can make analysis highly nuanced. “We are talking about carbon emissions, human rights, resource usage, diversity and inclusion, and more,” he says. “These are very different factors, which do not necessarily correlate to each other and care needs to be taken not to treat ESG as a single issue.”
Saunders Calvert says the more sophisticated asset management firms are correlating ESG with financial performance. For example, he says, “If you posit the hypothesis that the economy will be decarbonised over the next 10 years, then it’s financially material whether firms are on this journey. A number of energy companies have issued statements about becoming carbon neutral. People may be sceptical of this, but what they may not understand is that what’s required is a total and profound change in the organisation. It’s a phenomenal risk, so why do it? The only answer is that the risk of not doing it is much greater.”
This kind of thinking, he says, is driving demand for new data types as investors look to assess whether the entities they are investing in are, say, harming the environment or failing to embrace diversity. Firms need help in screening their investments against these factors.
With disclosure requirements and standards still found wanting, firms will be seeking higher-quality data going forward. So-called alternative data sets – like satellite imagery – may help investors assess whether corporations’ physical activities are living up to the promises in the annual reports. Finally, Saunders Calvert says, firms will need analytics to make sense of these new data sets and to understand, for instance, whether a company or country is living up to its obligations under the Paris Accord.
“Investors will need models and intelligence,” he says, “and this will drive demand for the next couple of years.”
