While equity managers have been incorporating environmental, social, and corporate governance (ESG) data into their investment process for years now, fixed-income and credit managers are catching on and finding unique value in ESG data. In fact, there’s a growing consensus among fixed-income managers that ESG research and analysis is fundamental to any rigorous evaluation of a company’s future prospects.
|
|
Equity Analysis |
Credit Analysis |
|
Governance Issues |
56% |
42% |
|
Environmental Issues |
37% |
27% |
|
Social Issues |
35% |
27% |
Respondents Who Often/Always Integrate Material ESG Issues into Their Investment Analysis
Source: PRI: Guidance and Case Studies on ESG Integration: Equities and Fixed Income
ESG data isn’t new, but new ESG datasets in the age of technology breakthroughs have emerged and are being used by some of the world’s largest asset managers and asset owners. Below we highlight three of the many ways that fixed-income investors rely on ESG data from Truvalue Labs in investment decision-making today.
In the quest to find risk-adjusted returns, fixed-income managers need to determine if a company is well-managed and has a good sustainable investment for their investment horizon while mitigating risk.
Many fixed-income managers align their investment approach with the Materiality Framework produced by the Sustainable Accounting Standards Board (SASB). Truvalue Labs’ deep integration of those standards help fixed-income managers to identify material factors that impact risk and return so that they can make more informed investment decisions. The ability to perform peer comparisons within the same framework helps them to determine where to spend time digging deeper into areas of potential volatility risk or to find corporate issuers that are worthy of investment.
Furthermore, ESG data derived using artificial intelligence (AI) helps fixed-income managers to review systemic litigation, regulatory, and environmental risks, as shown in a Wharton study by Professor Witold Henisz and PhD candidate James McGlinich, ESG, Material Credit Events, and Credit Risk. You can watch Dr. Henisz as he shares their research findings in this recorded webinar and research paper.
AI-driven ESG data gives fixed-income analysts and portfolio managers the ability to dig deeper where it counts by processing millions of data points a month to surface the most relevant, material ESG events in their investment universe at scale. Translation? Fixed income and credit managers can quickly understand and identify patterns of ESG behavior, so that they know where to spend their time digging deeper.
Truvalue Labs’ ESG data and analytics help managers to make their own decisions on whether the patterns are material to the underlying credit of the companies that they invest in, and to identify the risk factors that either put issuers at risk or could trigger volatility. Companies with poor ESG practices are creating potential long-term liabilities for themselves.
Because Truvalue Labs’ ESG data offers deeper transparency and dynamic comparisons across peers within an industry, across sectors, and against benchmarks, it uniquely enables fixed-income managers to corroborate their ESG assessments and improve risk management overall.
Case in point, a recent study by Fitch Ratings highlights how they used Truvalue Labs’ ESG data to track regional patterns in the public citation of water and wastewater management issues for Fitch’s rated metals and mining companies, shedding light on risks to the global battery metals supply chain.
One area of difficulty that we’ve heard about from both equity and fixed-income investors is that finding material ESG information on small-cap or private companies is a challenge as information can be scarce. This is where Truvalue Labs can be of great help, as we analyze over 100,000 news and other sources every day to gather the most important ESG insights to share with you on companies across the globe, including private companies and emerging and frontier markets’ companies in key benchmark indices and ETFs. In fact, we track over 2,800 private companies. Furthermore, 20% of the more than 19,000 companies we track are emerging or frontier markets companies.
With our AI engine, Truvalue Labs can provide an ESG information advantage that other providers miss. For example, credit analyst teams that cover private, emerging, or frontier markets companies can use Truvalue AI Insights notifications to find news and ESG events information on specific indices like the EMCB, for example, and have found that they’re getting insights that they haven’t found with other sources. It helps them to better monitor portfolio holdings and watch lists for investment with information on companies even when information is scarce so that when material ESG events occur, you’ll benefit from our AI-driven insights.
Truvalue Labs' data is now part of FactSet's powerful ESG solutions.
This article was previously published by Truvalue Labs.
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.