ESG Industry Challenges:  New Solutions

The FrostRB ESG Research Valuation/Integration Framework allows asset managers to create

customized ESG valuation parameters, regardless of their current research valuation process.

 

ESG research inputs are particularly difficult to value, given:

 

   -  the variety of approaches and ESG implementation strategies used by different managers

   -  the fact that important ESG research inputs, including databases, do not lend themselves to                        document or interaction counting.

 

ESG Issues and Opportunities for Asset Managers

  • Many asset managers are offering ESG products and are striving to integrate ESG principals in their

       generalist funds.

 

  • Many asset owners would like managers to demonstrate how they are integrating ESG principals into the investment process.

 

  • As internal and external research are important inputs in fundamental strategies, how is ESG research integrated into the investment/research process?

 

  • Given the variety of ESG approaches, how can managers value ESG research based on their investment products and their individual ESG frameworks?

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How Are the Expectations of Asset Owners, Consultants and Advocacy Groups Changing?*

  • Require asset managers to regularly report on how responsible investment issues are being managed

        throughout all stages of the investment process …….

 

  • Asset managers should integrate ESG into their regular sector and company research and include ESG

       in the broker vote process.

 

  • Ensure that CIOs and managers ask portfolio teams who use ESG/SRI research to quantify that value

         and ensure that the broker liaison officer includes ESG/SRI in the firm’s regular broker assessment/reviews.

Frequent Asset Owner/Consultant Questions:*

  • What ESG data, research resources, tools and practices do you use to integrate ESG factors into your investment process, valuations and decisions?

  • What weighting to ESG factors have on the decision-making process and investment decisions?

  • Where do you source ESG research and tools?

  • Do you make your own assessment on ESG issues ore use third-party ESG Rating?

*  Sources:  PRI, IRRI Survey 2019, ShareAction

Manager Research Integration Issues

All to often, the fundamental and ESG analyst teams at asset managers are operating in completely separate realms.

Integration is a major challenge, particularly for complex managers running multiple investment strategies/products/asset classes.

The FrostRB Framework systematically facilitates this integration, regardless of the complexity of the manager.

 

Frost’s unique strategy research benchmarking database provides context for both asset managers and asset owners.

Key Challenges:

Given the sheer diversity and scope of the UN's Sustainable Development Goals ......

...... each asset manager must choose their own ESG focus.

Managers must also choose which of the ESG implementation strategies they will adopt, and in what proportion.

All of these choices will have an impact on the absolute and relative value of the ESG research inputs to the manager.

Variety of Research Sources

The ESG research valuation process is complicated by the fact that most managers use a variety of internal and

external ESG research sources ...........................................which must serve both ESG products and other funds

                                                                                             increasingly incorporating ESG factors.

Key Questions:

  • How can we determine the value of ESG research inputs…..

       - given our particular ESG process?

 

       - given the diversity of research inputs (data/documents etc.)?

 

       - at the fund/client level?

 

  • How can we demonstrate the integration of ESG research into our wider research process to clients/ stakeholders?

  • How can we determine whether incremental ESG research spending should be internal or external?

Current State .....

   Many managers have struggled to integrate ESG factors into the investment process and into their current research valuation process .............

Solutions:

   The FrostRB ESG Research Valuation/Integration Framework provides a solution by working with the manager's existing research valuation process.

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Registered address: 15 St. Botolph Street, London, EC3A 7BB.