Part 0: Introduction and context

In this short opening section, we raise some open contextual questions and help respondents identify the type of questions that we are seeking answers for.

Which organisations worldwide have a stake in sustainable investment data, ratings or research processes?  What is the extent and nature of their exposure?

  • EC interest: Contextual
  • Your view: Contribute information, ideas & your opinions: via this structured survey (most efficient) | This email address is being protected from spambots. You need JavaScript enabled to view it. (still pretty good) or | by emailing your thoughts to This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Outstanding questions

We need various details from various firms on the depth of their involvement in sustainable investment including details on:

  • the assets under management,
  • the number of clients they have and
  • the number of members of their team.

What we (think we) already know => Context

From the organizational profiles on SRI-CONNECT, we already have a good idea of the nature of exposure of different firms to sustainable investment.  We encourage all firms to update their profile on SRI-CONNECT via here.

How and why do organisations engage with the sustainable investment process?

  • EC interest: Contextual
  • Your view: Contribute information, ideas & your opinions: via this structured survey (most efficient) | This email address is being protected from spambots. You need JavaScript enabled to view it. (still pretty good) or | by emailing your thoughts to This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Outstanding questions

We are keen to ask companies, research providers and research users about the nature and depth of their involvement in sustainable investment including details of the strategies and services that they offer.

What we (think we) already know => Context

From the organizational profiles on SRI-CONNECT, we already have a good idea of the nature of exposure of different firms to sustainable investment.  We encourage all firms to update their profile on SRI-CONNECT via here.

What definitions of sustainable development underpins (or doesn’t) the investment process of investors and research providers?

  • EC Study: Contextual
  • Your view: Contribute information, ideas & your opinions: via this structured survey (most efficient) | This email address is being protected from spambots. You need JavaScript enabled to view it. (still pretty good) or | by emailing your thoughts to This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Outstanding questions

We have a variety of questions for all firms about the degree of alignment between their ‘ESG’ investment activity and the fundamentals of sustainable development.

What we (think we) already know => Context

The EC and sustainable development

In shaping this study, the European Commission has chosen to use the term ‘sustainable’ to achieve alignment with the EC’s Sustainable Finance Action Plan.  This makes sense to us, but we note that it does not map directly onto the expressed priorities of investors - which are often articulated as ‘ESG’ (environmental, social and governance).

The European Commission has clearly articulated its own definition of sustainable development in Bruntland’s terms as “meeting the needs of the present whilst ensuring future generations can meet their own needs.  It has three pillars: economic, environmental and social. To achieve sustainable development, policies in these three areas have to work together and support each other.”

From the same source, we understand that the EC “was instrumental in shaping Agenda 2030.  The EU and its member countries are fully committed to implementing Agenda 2030 and its Sustainable Development Goals … (a set of 17 Sustainable Development Goals and 169 targets proposed by the United Nations) into EU policies.”

For climate change and environmental issues specifically, the EU is developing a taxonomy to enable capital markets to identify and respond to investment opportunities that contribute to environmental policy objectives.

As noted above, sustainability information can usefully be divided into:

  • Environmental information
  • Social information
  • Economic information

Alongside this, investors also consider:

  • corporate governance information and
  • financial* information about companies.

(* Importantly, the financial return generated by a company is different from the economic contribution made by a company - which extends the commonly understood ‘triple bottom line’ concept into a quadruple bottom line).

However, this exposes the first fault line between sustainable development and ‘ESG’.  Investors typically do not consider the ‘economic dimension’.  Put colloquially, ‘ESG’ is missing a second ‘E’.

Available information types

Information can then be divided into:

  • Quantitative data
  • Qualitative information

Alongside these, information can be:

  • Event-based information or
  • Graded information - where analytical judgement is used to:
    • amalgamate quantitative data of different types into a single unit or
    • categorise, classify, rate or grade qualitative data - thereby enabling the resulting grade to be processed as if it were quantitative data

(Importantly, such grading is central to the process of sustainable investment data, ratings and research as it enables qualitative inputs to be manipulated at (portfolio-level) scale.  Typically, subjectivity / analytical judgement occurs during these processes.  Even where such processes are automated, judgement is typically required to establish the rules for such automation and to review them.)

Information gathered can also be divided into:

  • Factors that the issuer (typically a company) has control over (management factors)
  • Factors that that the issuer has no control over (exposure factors) - but may still have an impact on the issuer’s investment performance

Examples are shown in the table below

Category

Management factors

Exposure factors

Environmental (quantitative)

GHG emissions

Water scarcity

Environmental (qualitative)

Climate change policy

Air quality legislation

Social (quantitative)

Accident frequency rate

Population growth/shift

Social (qualitative)

Staff satisfaction

Parental leave

Economic (quantitative)

Contribution to GDP

GDP of a country

Economic (qualitative)

Support for local economic development

Consumer optimism

In addition to these fundamental sustainability factors, investors also consider corporate governance and financial factors.

Category

Management factors

Exposure factors

Corporate governance (quantitative)

Board diversity

Availability of qualified board members

Corporate governance (qualitative)

Shareholder relations

Market practices

Financial (quantitative)

Company turnover

Market size for company’s products

Financial (qualitative)

Reliability of information

Comparability of information across companies

Fundamentally, all sustainable investment research products and the uses that they are put to are generated from these core data categories.  However, the choices that are made in the development and delivery of products and in the weighting applied to criteria can cause gaps to open between the investment products on offer and the fundamental tenets of sustainable development.

Should the EC intervene in the sustainable investment data, ratings and research value chain?

  • Your view: Contribute information, ideas & your opinions: via this structured survey (most efficient) | This email address is being protected from spambots. You need JavaScript enabled to view it. (still pretty good) or | by emailing your thoughts to This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

Outstanding questions

We have questions for all industry participants about:

  • What problems (if any) do you perceive in the supply and usage of sustainable investment data, ratings and research?
  • What untapped opportunities (to contribute to sustainable development) lie within the scope of sustainable investment data, ratings and research providers?
  • (How) could the EC intervene to fix problems / leverage opportunities in the sustainable investment data, ratings and investment research value chain?
  • Are there any inherent conflicts of interests in the supply of sustainable investment data, ratings or research that the EC should address?
  • Are there areas of sustainable investment data, ratings or investment research supply that are constrained by lack of funding? Why is this? Why will the market not fix these?
  • If not by regulatory intervention, how might any problems in the sustainable investment data, ratings and research process be resolved?
  • If not by regulatory intervention, how could untapped opportunities in the sustainable investment data, ratings and research value chain be stimulated?
  • Do any of the differences exist (in your opinion) between sustainable investment data, ratings and research supply and ‘mainstream’ investment data, ratings and research supply?

What we (think we) already know => Context

To date, intervention by the European Commission to raise expectations and standards in sustainable investment have generally been welcomed by the sustainable investment industry.  This is unsurprising as they have largely had the effect of stimulating or supporting growth in the industry.  It may also be because sustainable investment practitioners probably have a cultural predilection towards government action and regulatory intervention to achieve environmental and social objectives.

As the sustainable investment industry approaches the crossover point (from niche to mainstream), it will engage more ‘mainstream’ investors and managers who are likely to have a more instinctive preference for minimal regulatory intervention in markets.  While some such individuals may object (on political grounds) to any governmental intervention, a majority are likely to accept intervention that improves the efficiency and competitiveness of markets but dislike regulation that is designed to achieve social or environmental objectives.

To reflect this likely range of opinions, throughout our research we will encourage respondents to consider:

  • Improvements and developments that are likely to occur under the influence of normal market forces (i.e. without intervention)
  • Regulatory interventions to promote efficiency and competitiveness within markets (market regulation)
  • Regulatory interventions to define, improve or standardize products, firms or processes (product regulation)
  • Regulatory rollback (if existing regulation is causing impediment)
  • Other (non-regulatory) interventions - including other policy measures, funding, infrastructure development etc.

When answering the open questions in this section about potential intervention, we encourage respondents to think broadly and to consider as wide a range of potential interventions (or non-interventions) as possible.