Chap 7 Key Facts

Question 1

KEY FACTS

1. Investors integrate ESG techniques to improve investment returns, lower investment risk, meet client needs and regulatory requirements.

Answer 1

2. There are a multitude of approaches to integrating ESG analysis into a firm’s investment process. Many approaches can be combined and some are more suitable to specific asset classes and risks.

Question 2

3. Quantitative and qualitative approaches can be used at all stages of the investment process from idea and research generation, to asset valuation and portfolio construction.

Answer 2

4. Materiality assessment is an important ESG technique as investors typically distinguish between important material ESG factors and less important non-material ESG factors. Non-material factors are considered to not impact investment considerations.

Question 3

5. Primary ESG data comes from direct sources. Secondary ESG information has been transformed or assessed. Investors can use both types of ESG sources in their analysis.

Answer 3

6. ESG ratings agencies use a mix of ESG information and proprietary assessments to give ESG ratings to stocks and credits.

Current ESG ratings agencies have limited correlation between their ESG ratings due to methodological differences.

Question 4

7. Credit ratings agencies are increasingly using some ESG factors, particularly G, into their credit assessments. This has developed and is expected to continue to develop quickly.

Answer 4

8. Investment consultants and asset owners will utilise ESG assessment to judge investment managers and use it as part of their decision criteria.

Question 5

9. Index providers use ESG factors in establishing ESG indices. These can be thematic or general.

Answer 5

10. Investors use a range of ESG ratings and techniques both internally generated and sources from third
    parties to enhance their investment valuation and decision processes.