ASSET4 and the UNEP FI’s Principles for Responsible Investment

One of the goals of the UNEP FI’s Principles for Responsible Investment is to integrate ESG issues into the mainstream investment process. To make this a reality, investors require access to ESG data in a manner similar to the way they access financial data currently. However, a major obstacle to this type of access has been that data on corporate ESG performance has not been available in a comprehensive, systematic and objective manner similar to the financial data that is available from Bloomberg, Thomson or Factset, for example.

ASSET4 is the first company to provide both the information and tools necessary to track and monitor ESG issues in an objective, systematic, transparent and flexible manner to enable investors to fully incorporate these issues into their investment processes.

Below is a short description of how the ASSET4 system supports the implementation of each of the six Principles.

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PRI #1 – We will incorporate ESG issues into investment analysis and decision-making processes.

For investors to begin incorporating ESG issues into their investment decisions, they first need to identify exactly what the key environmental, social and governance issues are and how to measure and evaluate them. The ASSET4 integrated information framework contains over 250 of the most decisive ESG indicators of performance, risk, opportunity and reputation.

By creating this set of indicators and a statistical process to analyse it, we are able to monitor and measure a wide range of information that is not expressed in monetary terms, which includes much of the ESG data. Through this process we take information that is not easily quantified and quantify it in a way that enables users to benchmark the performance of one company against another, even if they are in very different industries. This benchmarking ability, both between companies and over time, is essential to giving our users the insights they need to incorporate ESG issues into their current investment processes.

PRI # 2 – We will be active owners and incorporate ESG issues into our ownership policies and practices.

In order for investors to engage companies on ESG issues, they must be able to accurately identify how a company is performing on those issues in standalone terms, as well as in comparison to its peers. With the ASSET4 system users can easily identify areas of weakness in a company’s performance against a user-defined benchmark of peers. This information is a great way to engage with companies in order understand their awareness of these issues, as well as to uncover if they have plans in place to concretely improve their performance.

With the ASSET4 system, users have access to a number of standardised reports that they can use to evaluate a company or portfolio’s performance. One of those reports is the portfolio report that provides a snapshot of the portfolio’s performance against the benchmark, while highlighting areas of improvement, as well as which companies are best or worst performers within the portfolio.

PRI # 3 – We will seek appropriate disclosure on ESG issues by the entities in which we invest.

One of the foundations of the ASSET4 system is transparency. One aspect of this is that all collected data down to the data point and raw data levels for each indicator is available for reporting and analysis, which allows our users to see the original source.

By using a standardized and objective collection, verification and analysis process that is based on public information (annual reports, company filings, websites, etc.), we ensure that our ratings and evaluations are easily comparable and highly objective. Nothing is hidden from either the companies or the users. It is only with transparent and objective data and evaluations that investors will be able to engage companies to insist on a high level of disclosure on these issues.

PRI #4 – We will promote acceptance and implementation of the Principles within the investment industry.

To assist in the acceptance of the Principles within the investment industry, it is of fundamental importance to demonstrate the materiality of the ESG issues. The ASSET4 system can assist investors in understanding, demonstrating and monitoring this materiality. Since the system maintains information on all relevant indicators for all companies going back at least four years, users are able to backtrack performance and conduct scenario analysis of portfolios.

By simply creating portfolios that have different emphasis on various ESG issues, performance can be measured over time. With these measurements users can demonstrate how much influence either specific ESG issues or a broad category of issues had on a company or industry’s performance. In fact, ASSET4 recently conducted one such study that demonstrated a significant correlation between good corporate governance and equity performance.

PRI #5 – We will work together to enhance our effectiveness in implementing the Principles.

In order to most effectively share information between a variety of groups or individuals, it is helpful to be using the same criteria and processes to define that information. It is our hope that the ASSET4 system can be of assistance to this sharing of information. Since each and every data point is accessible and has been gathered, evaluated and verified through a highly rigorous process that contains no qualitative or judgmental analysis by our analysts, we believe that our data can form an objective and transparent basis for an effective implementation of the Principles.

While our users have the ability to interpret and analyse the integrated information in conjunction with the model-based ASSET4 ratings and scores, they also can create their own set of criteria from our over 250 indicators and define specific weightings for those indicators in order to generate individual evaluations of ESG issues for their portfolio. This flexibility can help generate a variety of ways to evaluate performance, which should be useful as part of the ongoing process of creating a consensus on which ESG factors are most material within a specific industry or sector.

PRI #6 – We will each report on our activities and progress towards implementing the Principles.

With the ASSET4 system, users are able to generate reports that can be distributed internally or externally. Due to the flexibility of the system’s reporting capabilities, users can create reports at various levels of detail, in a variety of formats and over different timeframes. For example, users could select a report showing a comparison of a portfolio's overall performance with a specific benchmark for the years from 2002 to 2005. Or for a more detailed example, users could create a report showing the performance of the portfolio in regard to a specific environmental issue like emission reduction.

It is essential that investors are able to communicate with a broad range of stakeholders in order to increase the awareness of ESG issues. The ASSET4 reporting system can play an important role in facilitating these communications due to its robust standardised reporting capabilities, as well as its very flexible user-defined reporting capabilities.

Having the ability to demonstrate a company’s under-performance or out-performance based on the strength or weakness of its ESG integration will go a long way to ensuring that the incorporation of these issues becomes part of the investment industry’s standard operating procedure.

ASSET4 is a proud signatory of the UNEP FI’s Principles for Responsible Investment.  A list of the Principles and possible actions associated with them, can be found here: www.unpri.org/principles/.