As an active manager, it’s our duty to consider all factors that can pose a risk to or enhance clients’ assets. Columbia Threadneedle Investments has added to its extensive fundamental research effort by launching an innovative responsible investment (RI) ratings tool that combines an assessment of a company’s financial stewardship with a view on how well it manages its Environmental, Social and Governance (ESG) risks.
By combining both aspects into a single, forward-looking company rating from 1 (the strongest) to 5 (the weakest), this proprietary tool reflects our conviction that prudent management of financial and ESG factors is important to a company’s ability to create long-term, sustainable value.
Utilizing data science and cloud computing, the RI ratings provide our global investment teams with a more robust responsible investment framework and enhanced analysis of over 5,500 listed equities across the world, to complement existing fundamental analysis.
Responsible investment is not just about ESG policies – financial stewardship is equally important. Our aim was to build a market-leading and forward-looking RI framework that could be used by our investment teams to enhance their fundamental analysis of companies and guide their engagement with companies.
Asset owners have highlighted concerns at the ability of many third-party ESG approaches to capture non-financial value and the likely impact on financial returns. Our RI ratings address these limitations by combining analysis of both the financial and non-financial quality of business, providing our investment teams with clear insight into those factors that relate to a company’s long-term performance.
The ratings combine two proprietary models, one focused on financial stewardship and the other on performance on ESG materiality factors. The outputs of the models are combined to produce a responsible investment rating from 1 to 5.
The financial stewardship model draws on academic models that measure prudent, long-term financial governance to identify well-managed businesses. It then applies a proprietary company stewardship rating, which complements the fundamental and risk perspectives of our investment teams.
The ESG materiality model builds on the Sustainability and Accounting Boards (SASB®) framework, which identifies the most financially material sustainability factors for 77 distinct industries. It provides insight into management focus and operating practice standards, supporting fundamental analysis.