Square Mile Investment Consulting and Research has launched two new ESG initiatives amid growing demand for responsible investing.
The research and consultancy group will introduce ESG integration scores across its analysis of all asset management companies and funds within its Academy of Funds.
Companies and funds will be rated from zero to three depending on the impact of ESG considerations within their processes – from no approach to it playing an integral role.
The integration assessments will be applied at two levels. Firstly, Square Mile will assess at company level how a business integrates ESG considerations across all its investment processes, any formal policies incorporating ESG factors and the monitoring of ESG within processes, engagement and voting practices.
Following that, an assessment at fund level of how ESG is adopted by fund managers will be carried out, analysing the extent to which ESG is used as an input in the process, which factors are considered and how these factors impact research and portfolio construction.
Square Mile said the assessments reflect the growing importance of ESG factors and how they are used as a tool for both risk and return.
Victoria Hasler, director, research and consulting, Square Mile, said: “We recognise that there is a significant and growing interest in the extent to which ESG factors inform philosophy both at a company and fund level. This is often used to great advantage both to enhance returns and, perhaps even more importantly, to understand and manage risk.
“In assigning an ESG integration assessment to all funds within our Academy of Funds, and to the businesses that offer them, we believe that advisers and their clients will be better placed to make an informed decision on whether their investment partner is equipped to deliver returns in a way that reflects their broader ESG expectations.”
In addition, Square Mile will award responsible ratings to active and passive funds which adopt a responsible investment approach to portfolio construction. The new ratings will complement the ESG integration assessment, the group said.
Funds which include an element within their stated objectives which explicitly aims to have a positive impact on society or the environment or where it is included in their mandate will be awarded a rating. Currently, 18 funds qualify for the responsible ratings.
Hasler added: “It is clear that an ever-widening spectrum of investors now seek to combine a need for a financial return with a desire for their investments to benefit society or the environment. However, it is also apparent that with a greater proliferation of funds available comes greater confusion over the terminology applied to responsible investing and the various approaches and processes adopted by fund managers.
“Our responsible ratings aim to improve clarity by providing an endorsement of funds which our analysts believe have a clearly articulated and understandable objective, a responsible investing philosophy and can demonstrate their ability to deliver on both.”
