Responsible Investment in Practice: webinar presents tools used for ESG integration

Responsible investment is defined as the incorporation of environmental, social and governance (ESG) issues into investment decisions. The tools and approaches used to mitigate ESG risks and search for better returns were the subject of the webinar “Responsible Investment in Practice” carried out by SITAWI on July 18.

The discussion was conducted by the managing director of SITAWI, Gustavo Pimentel, and Sustainable Finance consultant Carla Schuchmann. Sustainability professionals, business managers and investment analysts who participated in the presentation were able to delve into Responsible Investment approaches and ESG Analysis Tools such as SITAWI’s ESG Valuation Methodology and VigeoEiris’s ESG Rating platform.

Studies point out that incorporating ESG issues into financial analysis leads to better risk-adjusted returns in the long term. Social and environmental factors also influence the different classes of financial assets, such as equities, fixed income and real estate. The volume of assets managed globally with responsible investment approaches have grown dramatically over the past few years.

The Principles for Responsible Investment (PRI) initiative, an investor partnership supported by the UN Environment Program’s Finance Initiative (UNEP FI) and the UN Global Compact, aims to engage investors in integrating ESG issues into their investment decisions and asset ownership. This initiative has been consistently increasing the number of signatory investors  since its formation in 2006.

According to the Global Sustainable Investment Review, globally the total of professionally managed assets with a responsible investment approach have grown 25% in the last 2 years. Europe is the main market that uses this approach. By 2016, the region accounted for $12 trillion in responsibly managed assets, representing an increase of 11.7 percent since 2014.

In Brazil, some pension funds use ESG criteria for investment decision. About R$117 billion in assets under management of the 50 largest funds incorporate these criteria with a medium or high degree of sophistication.

Details on the ESG incorporation of the pension funds can be accessed in SITAWI’s  study “RI Brazil 2016”, which analyzes issues such as investment policy and degree of sophistication of ESG practices, among other topics.

During the webinar, SITAWI presented two tools available to support investors in ESG analysis: ESG valuation methodology and Vigeo Eiris’s ESG rating.

The ESG valuation methodology consists of a quantitative modeling of ESG impact into companies’ cash flows, which, in general terms, means the pricing of ESG externalities for further integration into fundamental asset valuation. SITAWI already covers more than 100 Brazilian companies and 40 Latin American companies using this methodology.

The ESG rating is offered through our partnership with Vigeo Eiris. It consists of a qualitative analysis of the companies’ ESG management that generates general and specific ratings for each theme. Through an online tool it is possible to have access to detailed analysis of 4,000 companies, to do portfolio analysis and sector and country benchmark.

Through these and other works, SITAWI was chosen by the Independent Research in Responsible Investment (IRRI) 2016 as one of the 10 best ESG research agencies for investors globally; in the individual category of best analyst, our managing director came in second place, and we had two other professionals among the top 15.

Check out the complete material (portuguese only) presented in the webinar and learn more about the social and environmental assessment methodologies.