December 2018 – read a round-up of research undertaken by our ILG members.
AEGON
ESG Integration in Sovereign Portfolios
Aegon has been conducting in-depth analysis of the opportunities and challenges related to ESG integration in sovereign portfolios. These exercises proved ESG integration to be a value-adding tool to the investment process, and showed that neither the methodologies currently used to build ESG scores, nor the data points used to construct them, are always transparent. Therefore, Aegon has built a proprietary score allowing them to better understand the ESG risks at the country level across their portfolios.
ESG Integration in Sovereign Portfolios
AON
Climate change challenges: climate change scenarios and their impact on funding risk and asset allocation
AON has considered four potential climate change scenarios and their potential impacts on assets and pension scheme funding levels. In the green regulation scenario which considers the impact of immediate, coordinated action to tackle climate change using taxes and regulation, the study finds that the introduction of strict carbon regulation and the rapid shift away from fossil fuels worldwide hurts global growth over the short-term (next three years). Growth improves over the intermediate to long-term ((next eleven to twenty years) as the global economy successfully restructures toward renewables, achieving a brighter sustainable outlook, supported by positive spillover effects from green policy adoption.
Climate change challenges: climate change scenarios and their impact on funding risk and asset allocation
FIRST STATE
Is the investment ecosystem ready to meet the needs of the next generation of investors?
First State Investments and KeplerCheuvreux undertook a joint research project to test the views and preferences of millennials regarding their understanding and attitudes towards sustainable and responsible investment. The study draws eight key insights: (1) the overwhelming majority of millennials are interested in responsible investing, (2) the new generation is more at ease with ESG concepts, (3) there is a real demand for education on products, (4) Responsible investment expertise is now expected from investment providers, (5) Respondents focused on the “E” in ESG, (6), a slight majority perceived a boost to long-term returns, (7) the perception of “responsibility” remains sensitive to company controversies, (8) financial services need to adapt to the first “digital native” generation.
Is the investment ecosystem ready to meet the needs of the next generation of investors?
HSBC
Low-carbon transition scenarios: exploring scenario analysis for equity valuations
HSBC has been developing a scenario-based approach to assess the economic impacts of a low-carbon transition, including uncertainty around future policy and technology pathways. This report uses six illustrative scenarios. Across all the scenarios, initial findings suggest that a transition to a 2°C scenario will have significant impacts on net present value profits at the sector and equity level versus a world in which there is no new policy action. For example, oil and gas equities lose c.30-35% following these scenarios and modelling approach, while renewable energy companies gain c.70% in the 2020 Action scenario, where climate action increases rapidly from 2020.
Low-carbon transition: Exploring scenario analysis for equity valuations
PIMCO
Corporate reporting on the SDGs: Mapping a sustainable future
PIMCO has mapped the SDG sustainability reporting of 246 companies globally with the goal of encouraging enhanced disclosure. The study found that companies have a high level of awareness of the SDGs, with 63% referencing them in their reporting, of which 39% map business activities to specific goals. Despite high awareness, only 19% of companies referencing the SDGs set quantitative targets for meeting the goals, indicating that many are finding it challenging to translate well-intentioned support into action.
Corporate reporting on the SDGs: Mapping a sustainable future
UBP
White paper: Positive impact Equity
UBP has published a white paper focusing on their new positive impact strategy. The paper highlights the difference between impact investing and ESG integration, the relevance of the UN SDGs as a roadmap, the importance of impact measurement, the role of engagement in impact investing as well as provide a generalist fund manager’s perspective on impact investing.
White paper: Positive Impact Equity
ZURICH INSURANCE
2 degree target for global warming is melting and Managing the impacts of climate change: risk management responses
Zurich Insurance has developed a climate change scorecard that shows that measures to tackle climate change remain patchy. Technology is advancing but legislation and carbon pricing continue to lag. Energy efficiency gains have failed to offset a global growth upswing, causing carbon dioxide emissions to accelerate. In addition, Zurich Insurance has also published a paper focusing on the risk management responses to climate change for businesses and policymakers.
