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Industrial Subsectors: How Risks Are Evolving


By Tom Abrams, CFA  |  April 11, 2023

This is the second of two articles about sector risks. To view the first article about the evolution of risks in the transportation sector, click here.

Potential investor risk is one way to consider the elements comprising many ESG scores. Through that lens, one could further consider risks as material or immaterial. But to make that determination, you first need to identify the various risks.

FactSet’s Truvalue Dynamic Materiality scores indicate topics brought up the most across external documents such as news articles, industry reports, NGOs, watchdog groups, and social media. Tracking frequently discussed topics can point to the risks investors are concerned about and how they rise and fall in importance over time. A rising risk should draw investor attention to find out what is causing a certain topic to be discussed more frequently. In this article, we specifically look at material topics for the Industrials sector—aerospace and defense, electrical equipment, and building products—including how they have changed and what is trending now.

We reviewed Dynamic Materialty scores from daily scraping of more than 100,000 documents to identify topics (risks) investors might be focused on. These exclusive-to-FactSet scores are updated daily and are not reliant on annual or biannual corporate reporting. The topic mentions are aligned with 26 SASB materiality categories.


Aerospace and Defense

For eight leading North American aerospace and defense companies, the top 10 materiality factors are illustrated through time in the chart below. We show any material topic that was ever >5% of articles at any given point in time. Some issues may not ever come up for a company or an industry. The Y-axis in the charts indicates the percentage of material topics being discussed at a particular point in time. Presenting material topics—though ESG in original intent—as issues or risks can lead investors to see which issues or risks are rising and fading across an industry and, perhaps more importantly, to consider when an issue might again change in importance.

The aerospace data shows that labor practices (light blue line) was a leading and elevated issue during 2021 but returned to more “normal” levels in 2022. This was likely due to the industry’s difficulties keeping up with staffing over the past few years. Interestingly, though industry participants still talk about hiring difficulties, mentions of labor practices have declined in Truvalue web scrapes.

A second issue category, product lifecycle management, has recently ticked up in importance. Perhaps that’s due to concerns about commercial aviation production issues and/or sustainable delivery of what could be a higher defense equipment delivery cadence.

It is interesting to note that supply chain management (light gray line) didn’t show up as a rising or highly scored topic even though the industry has been talking about supply chain issues since the beginning of the Covid pandemic. Lastly, the topic of greenhouse gas emissions has become more material after scoring in a lower frequency since mid-2019.


Source: FactSet

After reviewing similar charts across several other industries, it’s notable in the above aerospace and defense chart there are no No. 1 or No. 2 materiality items that dominate the conversation as we see in other subsectors.

The chart below also shows aerospace and defense subsector data in a stacked line format for a different view. For most companies and industries, we have found the top 10 - 12 topics of the 26 total usually account for more than 90% of materiality scores with many being either insignificant or not discovered. Aerospace’s top 10 only amount to 75% of the items written about.


Source: FactSet

Electrical Equipment

As shown in in the chart below, the top 10 material topics for five leading North American electrical equipment companies indicate that product life cycle management has remained the most important subject over the past five years. Greenhouse gas emissions and supply chain management come in as No. 2 and No. 3, respectively, however are at more benign levels and without a significant change in frequency in the past year.


Source: FactSet

Building Products

For a group of six building products firms we again see a slightly different trend in leading issues through time. Product life cycle management and greenhouse gas emissions are the leading issues with the physical impact of climate change gaining attention in the past year. All three issues may point to a general interest percolating in news about decarbonizing the buildings industry with technologies, new construction standards, raw material (forestry) practices, and acceptable fuel choices. 

Employee health and safety (lighter green line) rose sharply in 2019, perhaps due to reported labor shortages, but that materiality item has subsequently received less attention more recently. 


Source: FactSet

No Surprise but Material Topics Evolve

We can also view how specific topics are evolving across subsectors. The three charts below, for example, show how greenhouse gas emissions, product lifecycle management, and supply chain management have risen and fallen in importance across the sector in the past few years.

Greenhouse Gas Emissions

In the greenhouse gas emissions chart, we see this topic has been rising in relative importance across the entire Industrials space for three years. The topic of greenhouse gas emissions is more important for airlines and building products than it is for aerospace and defense and other Industrials primarily in the services subsectors.


Source: FactSet

When turning to product lifecycle management—which again may hold keys to economic and global trade issues as well as capacity issues (a.k.a pricing)—we can see this is a far more important issue for the electrical equipment subsector than for other Industrial subsectors. Product lifecycle has remained a moderate but consistent topic for the building products and machinery subsectors. There have been less frequent references to product lifecycle issues among airlines and other industrial services than for other transportation subsectors. In addition, there is less interest in that issue on the margin for trucking and rail.


Source: FactSet

Supply Chain Management

When turning to supply chain management—which we would have thought to be an important issue across the Industrials landscape—we see that it has been consistently a topic of lower interest. Both the aerospace and defense as well as airlines industries show the lowest apparent interest in supply chain topics. Even the frequency of references for electrical equipment firms is modest.


Source: FactSet


The data show that important issues tend to vary considerably across the range of businesses in the Industrials sector. By monitoring data about the top industry issues, investors can identify which topics to hone in on and can understand which topics are rising and falling in importance.

Avoiding risks should be beneficial to portfolio performance. We believe FactSet’s Truvalue analysis of materiality topics over time—while based in an ESG context—can also be viewed as a study of evolving risk factors and an indication of the issues most important for a company or industry. Our Spotlight reports, too, can expedite discovery of what is being said and by whom.

Summer Xiao of FactSet contributed significantly to the research behind this Insight.


This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

Simplifying ESG with the Truvalue Platform

Tom Abrams, CFA

Associate Director, Deep Sector Content

Mr. Tom Abrams is the Associate Director for deep sector content at FactSet. In this role, he is responsible for integrating additional energy data onto the FactSet workstation, including drilling, production, cost, regulatory, and price information. Prior, he spent over 30 years working at sell- and buy-side firms, most recently as the sell-side midstream analyst at Morgan Stanley. He also held positions at Columbia Management, Dreyfus, Credit Suisse First Boston, Oppenheimer, and Lord Abbett. Mr. Abrams earned an MBA from the Cornell Graduate School of Business and holds a BA in economics from Hamilton College. He is a CFA charterholder and holds certificates in ESG investing, sustainable investments, and real estate analysis. 


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.