Information on ESG factors and related risks is offered by a wide range of institutions and providers but there are significant gaps. We seek to deepen our understanding of such issues through our own analysis, engagement and using proprietary ESG tools. The first step is effective data that covers our investment universe.
Insight's new corporate ESG ratings
- Data providers disagree on ESG risks and there are gaps in available information – leading us to develop a proprietary model that aligns with our approach to corporate fixed income
- Insight's proprietary data covers 99% of our investment grade indices
- Our framework considers 29 key ESG issues, ranging from carbon emissions to corruption
We have historically used MSCI, Sustainalytics, Vigeo and CDP data. However, there is frequently poor agreement between data providers about corporate ESG risks (see Figure 1).
Figure 1: There is frequently poor agreement between data providers about corporate ESG risks
Source: Insight. As at October 2019. The specific securities identified and described are subject to change, for information only to demonstrate key ESG risk assumptions and no assumptions should be made that the securities identified and discussed were or will be profitable.
Also, for many smaller issuers, particularly emerging market or high-yield companies, the availability of relevant non-financial data lags information from larger issuers. Since 2016 we have generated internal ESG ratings for such issuers by sending tailored ESG questionnaires to management – these inform our credit analysts’ assessment and help them identify issues to address through further engagement.
As we have strengthened our ESG capabilities, it became clear that developing proprietary ESG data would be essential in order to conduct in-depth ESG analysis and deliver better solutions for our clients. For this reason, we developed Insight ESG ratings, which have simplified the standard ESG framework and selectively customised the metrics to make the data as pertinent as possible to our analysis.
Our proprietary corporate Insight ESG score follows a risk-centric approach using advanced quantitative tools and avoiding subjective ethical biases. Our approach leads to high coverage of global benchmarks: over 850,000 subsidiaries for 6,500 different parent entities have an Insight ESG rating.
Around 99% of companies in global investment grade indices have a quantitative Insight ESG rating. For our European-focused ESG portfolios, 100% of companies have an ESG rating derived quantitatively (or qualitatively if the data is lacking). For our analysts, it is important to understand the ESG factors that are driving the ratings of an issuer, and the materiality of any risks that are present.
Our new Insight ESG ratings aim to be more dynamic and complete, and to integrate our analysts’ research more effectively, rather than relying solely on third-party data. We reclassify, reweight and organise the data according to our analysts’ current views on material risks facing industries to generate an ESG rating and momentum signal for a wide range of entities.
Figure 2: The Insight corporate ESG framework considers 29 key ESG issues
For more information on the methodology underlying Insight's corporate fixed income ESG ratings, please read our paper.