This Week’s Tech and Tool News: Mercer Guides Asset Owners to ‘RITE’ ESG Choices

ESG Investor’s weekly round-up of news on technology and tools in the sustainable investing sector, including Mercer, Moody’s Analytics, Isio, Fitch Ratings, Natural Capital Finance Alliance, ESG Risk AI.

A new service from investment consultants Mercer aims to assess how well UK asset owners are integrating ESG considerations into their overall investment decision making. Mercer’s Responsible Investment Total Evaluation (RITE) framework is designed to help institutional investors, including pension schemes, endowments, foundations and family offices, work towards best practice, by identifying opportunities for positive impact on society and the environment. RITE tracks progress over time, providing evidence of better outcomes using 75 data points across 21 categories. The data points are aligned with relevant regulatory guidance and consider the governance, monitoring and reporting of climate change risks and opportunities as well as other ESG factors. The asset owner is provided with an evaluation across each area of Mercer’s Responsible Investing Pathway (Beliefs, Policy, Process and Portfolio), resulting in a rating on an A++ to C scale, which can be compared against peers. “With trillions of pounds invested by large sophisticated asset owners in the UK, including £2.3 trillion via UK pension schemes, institutional investors have a huge role to play and should be helping to drive the UK’s sustainable investment agenda,” said Brian Henderson, Partner at Mercer. “Being reactive or, worse, doing nothing at all, is no longer acceptable. In order to move the needle on this issue, the industry has to take a proactive role.”

UK pensions advisory firm Isio will use Moody’s Analytics climate risk modeling to assess the financial impact from climate risk exposures, across both physical and transitional risks. The agreement will support Isio clients’ compliance with the UK Pension Schemes Act 2021, which requires large UK pension plans to report in line with Task Force on Climate-related Financial Disclosures (TCFD) recommendations. “Understanding and managing climate risk is increasingly important for our clients,” said Pat Race, Partner at Isio. “Moody’s Analytics has a strong track record in scenario modeling and their solutions and expertise will allow us to provide our clients with more valuable advice around managing their climate risk exposures.” Isio, formerly KPMG’s UK pensions practice, was launched in March 2020.

Fitch Ratings’ new ESG Sector Discovery Tool for Public Finance and Global Infrastructure provides a top-down view of the credit relevance and materiality of ESG issues across regions and sub-sectors. The tool shows the distribution of Fitch’s ESG Relevance Scores for Global Infrastructure and Project Finance, International Public Finance,  Local and Regional Governments and Government-Related Entities, US Public Finance Revenue-Supported issuers, and USPF Tax-Supported issuers  with the ability to see changes in ESG scores between 4Q19 and 4Q20. It highlights trends and allows users to visualise where ESG issues are affecting portfolios. For example, issuers were overwhelmingly assigned a score of ‘3’ for “Biodiversity and Natural Resources Management’ but there are increased exposures for issuers in the US, Russia and Argentina, with several entities scored with a ‘4’ and one with a ‘5’, mainly due to the impact of natural resources management on the economy and governmental operations.

The UN-backed Natural Capital Finance Alliance has added a biodiversity module to its ENCORE tool which enables banks and investors to explore the impact of their financing and investment activities in agriculture and mining on biodiversity, in particular species extinction and the loss of ecological integrity. The ENCORE tool (‘Exploring Natural Capital Opportunities, Risks and Exposure’) is a free, online resource which helps global banks, investors and insurance firms assess the risks that environmental degradation, such as pollution or destruction of forests, causes for financial institutions. The tool was developed by the Natural Capital Finance Alliance, a collaboration between the UN Environment Programme World Conservation Monitoring Centre, the UN Environment Programme Finance Initiative and Global Canopy.

ESG Risk Assessments & Insights, a unit of India’s Acuité Group, has made its ESG rating methodology available to all stakeholders to provide transparency of its assessment process. Sharing the methodology will enable stakeholders including corporates, asset owners, asset managers and banks to understand the ESG risk evaluation and scoring process. ESG Risk AI uses a “comprehensive taxonomy, robust methodology, and analyst expertise” to assess company ESG performance and assign a rating. Each score provides a summary of ESG strategy, initiatives, results, and negative news across 19 critical themes including energy, emissions, water, environmental management, ESG reporting, human rights, community, supply chain, and shareholders’ rights among others. The company also offers ESG assessment and electronic workflow tools.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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