ESG Funds - Analytic Tools
Socially conscientious investors have been turning more and more to investment funds that are environmentally, socially, and governmentally (ESG) responsible. Rating ESG funds, however, becomes very complicated due to the sheer number of metrics involved. Any rating at all would have to be based on shared values among investors, which don't exist. Due to this complexity, any rating system would measure each ESG fund in terms of many different metrics. The best company we found in terms of thoroughness of analysis is MSCI, but sustainalytics and ISS Quality Scores also offer important metrics for those who would rather not purchase a membership with MSCI. Below is a writeup for MSCI, sustainalytics, and ISS.
MSCI is a company that uses a diverse set of factors, including sustainable impact, values alignment, and ESG risk to rank different funds. Besides giving each fund an overall score, MSCI also gives individual ratings for the fund's performance in terms of the funds environmental, social, and governmental impacts. Clients of MSCI gain access to over 100 ESG metrics covering fund exposure to controversies, water security, governance risks, carbon footprint, and more. MSCI's research is broadly based in ten themes: climate change action, natural resource use, pollution, environmental opportunity, human capital use and retention, social opportunity, corporate governance, product liability, stakeholder opposition, and corporate behavior. With these ten things and all the metrics, it is likely that any potential investor could find a fund that fits their priorities.
Sustainalytics is a company that has been involved in corporate governance research and ESG rating for a quarter of a century. Over the years, the company has won numerous awards including the TBLI award for best ESG research house and the Globe award for sustainable investment and banking. The company offers analytics on financial performance, bench marking, controversy overviews, leaders and laggards, holding overviews, and product involvement.
Iss quality scores
ISS quality scores rank companies based on board structure, compensation, shareholder rights, and audit/risk oversight. The ISS quality would be of interest for investors who prioritize the inner workings of a company as much as its effects on society or the environment. Currently, ISS offers research on 5,600 companies world wide. ISS also offers climate change data through its recent aquizition, Climate Neutral Investments.
Because of the complexity of ESG investing, many investors will find it easiest to research based on their own values. For example, many ESG funds have become very conscious of greenhouse gas emissions in the face of both governmental initiatives such as the Montreal Pledge and various UN projects as well as popular movements by many environmentally sensitive investors away from fossil fuel. Still, if investors care more for a fund's investment in companies with higher rates of racial or gender diversity they may choose a different ESG fund entirely. For those looking for comprehensive, third-part analysis, MSCI, sustainalytics, and ISS quality scores can all help investors understand a company in terms of its ESG quality.