GUIDANCE AND CASE STUDIES FOR ESG INTEGRATION

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Guidance and case studies for ESG integration: equities and fixed income (2018)

ESG integration in the Americas (2018)

ESG integration in Asia Pacific (2019)

ESG integration in EMEA (2019)

1,100 financial

professionals surveyed

23 workshops in

17 major markets

30+ case studies written by

equity and fixed-income practitioners

PRI partnered with the CFA Institute to create a best-practice report and three regional reports on ESG integration in equity, corporate bond and sovereign debt portfolios.

CFA INSTITUTE PRI COLLABORATIONS

Guidance and Case Studies for ESG Integration: Equities and Fixed Income (2018)

ESG Integration in the Americas: Markets, Practices and Data(2018)

ESG Integration in Europe, the Middle East, and Africa : Markets, Practices and Data (2019)

ESG Integration in Asia Pacific: Markets, Practices and Data(2019)

MAIN STUDY FINDINGS

▪ There is no “one best way” to do ESG integration and no “silver bullet” to ESG integration.

▪ Governance is the ESG factor most investors are integrating into their process.

▪ Environmental and social factors are gaining acceptance, but from a low base.

▪ ESG integration is farther along in the equity world than in fixed income.

▪ Portfolio managers and analysts are more frequently integrating ESG into the investment process, but rarely adjusting their models based on ESG data.

▪ The main drivers of ESG integration are risk management and client demand.

▪ The main barriers to ESG integration are a limited understanding of ESG issues and a lack of comparable ESG data.

▪ Investors acknowledge that ESG data has come a long way, but advances in quality and comparability of data still have a long way to go.

▪ It would be helpful for issuers and investors to agree upon a single ESG reporting standard that could streamline the data collection process and produce more quality data.

▪ Many workshop participants were concerned that ESG mutual funds and ETFs offered to investors may be driven by marketing decisions and may not be true ESG investment products.

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ESG ISSUES WILL GROW IN IMPORTANCE - EQUITES

The impact of ESG issues on share prices in 2017 and the expected impact in 2022

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GLOBAL BARRIERS TO ESG INTEGRATION

Equities and fixed income

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BARRIERS IN SELECTED GLOBAL MARKETS

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United States Netherlands

United Kingdom

Russia

Japan

Australia

Italy

South Africa

China

41% 43%

60%

37%

51%

39%

33%

35%

39%

33%

38%

31%

28%

37%37%52%

51% 44%

48%55% 47%

42%

58%55%

45%

52%

32%

48%30%

38%Brazil

Low client demandNo evidence of investment benefits of ESGLack of historical and comparable ESG dataLack of company culture

Too much non-material information being disclosedLimited understanding of ESG issues/ESG integrationLimited amount of researchConcerns about negative returns, tracking error, and underperforming the benchmark

SOLUTIONS: CLIENT DEMAND

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Client demand is the second largest driver of ESG integration for equity investments after risk management

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SOLUTIONS: LIMITED UNDERSTANDING OF ESG ISSUES / INTEGRATION

ESG integrationFramework

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SECTORS Consumption Financials Health Care InfrastructureNon-Renewable

Resources

Renewable Resources & Alternative

Energy

Resource Transformation

ServicesTechnology and Communications

Transportation

ISSUESENVIRONMENT

GHG emissions

Air quality

Energy management

Fuel management

Water and wastewater management

Waste & hazardous materials management

Biodiversity impactsSOCIAL CAPITAL

Human rights and community relations

Access and affordability

Customer welfare

Data security and customer privacy

Fair disclosure and labelling

Fair marketing and advertisingHUMAN CAPITAL

Labour relations

Labour practices

Employee health, safety and wellbeing

Diversity and inclusion

Compensation and benefits

Recruitment, development and retentionBUSINESS MODEL AND INNOVATION

Lifecycle impacts of products and service

E & S impacts on assets, & ops

Product packaging

Product quality and safetyLEADERSHIP AND GOVERNANCE

Systemic risk management

Accident and safety management

Business ethics & transparency of payments

Competitive behaviour

Regulatory capture and political influence

Materials sourcing

Supply chain management

Issue is likely to be material for more than 50% of industries in sector

Issue is likely to be material for less than 50% of industries in sector

Issue is not likely to be material for any of the industries in sector

SASB materiality map

SOLUTIONS: LIMITED UNDERSTANDING OF ESG ISSUES / INTEGRATION