World leaders and private sector market participants met on October 31, 2021 in Glasgow, Scotland for the 26th United Nations (UN) climate conference, commonly referred to as COP26. This was a pivotal summit where governments and corporations were under pressure to act urgently to strengthen their climate pledges. At the conference, China and the U.S. agreed to boost their climate co-operation over the next decade to achieve the 1.5°C temperature goal set out in the 2015 Paris Agreement. Meeting this goal will require strong support from many stakeholders within both countries.
This large asset manager understands the importance of being a responsible investor in order to attract assets as climate issues continue to gain attention. It was one of the first signatories in China of the UN Principles for Responsible Investment (PRI), and is actively looking to expand its business outside the country. The research team was tasked with building up the firm’s Environmental, Social and Governance (ESG) evaluation system to support its investment decision-making process. This would begin by focusing on the ‘E’ component to help show both domestic and foreign investors the firm’s commitment to alignment with the Paris Agreement and responsible investing.
Pain Points
The research team wanted to incorporate carbon data into an in-house ESG scoring system to support portfolio screening, monitoring, and optimization. This would initially focus on equities and then branch into fixed income holdings. A review of a number of data providers showed a lack of coverage and granularity, especially for Chinese A share companies. The team wanted to find a provider that could offer:
- Deep knowledge and insights on climate analytics and industry best practices among global asset managers in decarbonizing portfolio emissions.
- Comprehensive environmental data with both depth and breadth, including a variety of metrics on company carbon emissions and intensities.
- Transparency to understand how data is collected, cleaned, and used in models.
- Strong client support to address technical questions and ensure smooth onboarding and integration of the data, as climate risk analytics is complex and often involves sophisticated methodologies.
- Robust analytical tools and reporting with both desktop and data feed options.
The research team had heard about the wide-ranging work that S&P Global Sustainable1 (“Sustainable1”) was doing with respect to climate risks and opportunities and contacted its specialists to learn more about the capabilities.
This large asset manager understands the importance of being a responsible investor in order to attract assets as climate issues continue to gain attention.
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The Solution
Sustainable1 represents S&P Global's integrated sustainability offerings. This includes Trucost, the data and analytics engine that powers many of S&P Global’s ESG solutions. Trucost assesses risks relating to climate change, natural resource constraints, and broader ESG factors through a complete environmental performance profile encompassing carbon emissions and other pollutant impacts, water use, natural resource dependency, and waste disposal to inform investment decision-making and power investment benchmarks. Sustainable1 discussed numerous capabilities that would enable the research team to:
Evaluate carbon footprints to score companies
Trucost Environmental Data contains information on over 16,000 companies,1 covering Scope 1, 2, and 3 with metrics on quantities and intensities of carbon- equivalent emissions (tCO2e, tCO2e/US$ revenues) and their estimated damage cost equivalents (US$), along with impact ratios. It includes sector revenue data that gives revenues and percentages of company revenues derived from each of 464 business sectors. Data goes back to 2005, where available.
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The powerful S&P Capital IQ Pro platform brings together an unrivaled breadth and depth of data, news, and research, combined with tech-forward productivity tools. This is complemented with XpressfeedTM that automates the download and management of data, enabling delivery as needed in a ready-to-query relational database to link to internal applications.
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Key Benefits
Members of the research team were impressed with the extent of the offering by S&P Sustainable1. In particular, the teams saw value in having:
- A one-stop solution to address the firm’s many ESG needs.
- Comprehensive and standardized global environmental information, plus a well-tested methodology to estimate the carbon intensity of non-reporting firms.
- Transparency to understand the inner workings of data collection and adjustment methodologies.
- Access to seasoned ESG specialists familiar with scoring methodologies who can address important questions as the firm develops its in-house capabilities, along with a locally- based support team.
- Streamlined workflows with quick access to data via a desktop solution and easy integration with internal applications using a powerful data feed solution.
The research team subscribed to the solution sets that were described to support its portfolio optimization goals, reporting requirements, and overall corporate growth strategy. As the firm looks to the future, it will be possible to expand the analysis by drawing on many other Sustainable1 capabilities to look at the physical risks faced by companies, their vulnerability to potential carbon price increases, and how today’s high emitters may look much better in the future as they pursue their journeys to net zero.
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1 All data as of October 2021.