The infrastructure to support the transition to more sustainable finance has received a boost this week with announcements in both the funds and risk management areas. Firstly, building on its commitment to connect and advance the global financial community through data and analytics, Refinitiv has announced Lipper Fund ESG Scores to serve as a data-metric in the transition to sustainable investing. The solution provides comparisons at the fund level for fund managers, advisors and investors.

Refinitiv Lipper Fund ESG Scores brings together the Lipper fund universe of 330,000 fund share classes and its deep holdings content, ESG coverage on over 9,000 companies, representing over 80% of global market capitalisation, and Refinitiv’s proprietary scoring methodology. The Refinitiv methodology factors in issues such as materiality and transparency stimulation, to create fund scores on over 19,000 unique portfolios representing US$15.7 trillion in total net assets across equity, bonds and mixed funds. The Fund ESG scores are available on Refinitiv Workspace, Eikon or API Feed.

Refinitiv Lipper Fund ESG Scores are designed to transparently and objectively measure ESG performance, commitment and effectiveness across 10 main themes (emissions, environmental product innovation, diversity and inclusion, human rights, shareholders, etc.) based on publicly-reported data on constituents within the fund across the three pillars Environmental, Social and Governance.

“Even as the world addresses the challenges of COVID-19, climate change remains one of the largest global issues impacting communities, food supplies, bio-diversity and economies," said David Craig, CEO of Refinitiv. "It has become imperative for financial markets to address so investors can direct funds to transitionary projects and away from high carbon and carbon-equivalent industries, and to meet an increasing number of regulatory mandates. Sustainable finance isn’t just a political or social choice - it’s a smart business decision. Refinitiv is proud to play its part in encouraging this transition by providing trusted data and analytics to investors, traders and advisors so they can evaluate ESG performance and allocate capital.”

“ESG scores are a uniquely effective way to assess performance across industries, factoring in issues such as materiality and transparency stimulation, and serve as an objective and impartial assessment of the importance of each ESG theme to different industries,” added Craig. 

Targeting self-identified ESG funds

Refinitiv data identifies the ever-increasing levels of assets under management that have a self-identified ESG focus. The variety and style of ESG incorporation is not consistent. Currently it ranges from those that apply negative screening to those with deep ESG integration for risk management purposes, and from models that correlate certain ESG metrics with alpha generation to those focused on measuring impact. When companies add the pressure of regulatory overhang, factoring in ESG considerations is even more critical. Refinitiv believes this new fund scoring capability provides investors with a differentiated asset that offers them a superior route in optimising capital towards sustainable outcomes. 

Refinitiv Lipper ESG Fund Scores incorporate two overall ESG scores in the model:

• ESG score. This measures company’s or fund’s ESG performance based on verifiable reported data in the public domain.
• ESG combined score. This overlays the ESG score with ESG controversies (impact of negative events) to provide a comprehensive evaluation on the company’s sustainability impact and conduct in near real time.

There are three total pillar scores to review how a fund or company performed according to the individual pillars of E, S and G, which are made up of 10 key themes. The approach Refinitiv has taken is to score the fund based on constituent attributes, in a bottom-up methodology, using Refinitiv company ESG data and scores and combining it with the deep holdings data on its global funds universe in Lipper.

“At Refinitiv we are focused on bringing transparency to markets and we believe we have unique assets across Lipper fund holdings, our extensive ESG company coverage and our proprietary scoring methodology," said Leon Saunders Calvert, head of Sustainable Finance, Lipper & I&A Insights at Refinitiv. "In addition to servicing the ESG expert community we believe we can help mainstream sustainability into the financial markets by delivering meaningful data, analytics and tools to finance professionals, allowing them to incorporate ESG factors more easily into the investment process. The launch of Fund ESG scores is an important step in this process.”

A step forward in ESG scoring

Earlier this year, Refinitiv announced enhancements to its ESG Scoring Methodology to reflect sustainable industry developments and market changes.  In 2019, Refinitiv brought together its ESG Sustainable Investing and Lipper Fund Ratings businesses to increase focus on unearthing links between sustainable business strategies and financial performance.   

“The benefits of more consistent and transparent ESG data clearly assist investors’ capacity to weave sustainability factors into their investment portfolios, aligned to their social values," commented Wally Okby, senior analyst at Aite Group. "With increased demand for ESG and sustainable investing since the onset of COVID-19 observed by about half of wealth management firms in our global ecosystem, the launch of Fund ESG scores is certainly opportune and beneficial at this juncture in time.”

“Incorporation of quality data is key to realising the promise of sustainable investing," added Will Trout, head of Wealth Management at Celent. "From a ratings perspective, deep coverage and robust scoring capabilities are a means to stand out.”

Refinitiv ESG data covers 80% of global market cap and over 450 metrics. Lipper research provides independent insight to asset managers and institutional investors on global collective investments, including mutual funds, retirement funds, hedge funds, and fund fees and expenses. 

Managing risk in the corporate ESG network

Elsewhere this week, Turnkey has launched an online Risk Management Platform for investors and corporates to manage ESG risks in a live environment. The technology is built for corporates, investors, private equity firms, and financial institutions to identify and reduce ESG risks across complex portfolio networks, mitigating potential adverse outcomes on the funds’ performance. The vendor says that the product is flexible and can also measure the impact of risk within the supply chain.

Live risk analytics and global frameworks mapping enables investors and companies to proactively monitor, report and evaluate their exposure to ESG risk. Working within the individual portfolio company or aggregated across the fund or supply chain to better manage and track changes in the overall risk profile.

This information can be also used to report internally to senior management and externally to limited partners, stakeholders and regulators. The Risk Management Platform streamlines reporting according to multiple frameworks including TCFD which became mandatory for the PRI signatories in 2020 and UN SDGs outcome-based reporting that will become mandatory in 2021. Other risk-related frameworks such as IFC and OPIC are also included.

Turnkey’s Risk Management Platform is the enhancement of the firm's Environmental, Social Action Plan (‘ESAP’) Module launched in late 2019.