ESG

Cohen & Steers’ commitment to investment excellence is built upon a culture of continuous improvement, and that includes our approach to ESG integration. They believe their proprietary approach to integration and engagement, combined with the framework established in the Principles for Responsible Investment (PRI), helps to promote transparency and has the potential to enhance their ability to deliver more consistent, attractive risk-adjusted returns.

This report was originally published in https://assets.cohenandsteers.com/assets/content/resources/insight/ESG-Evolving-Landscape_ES2050.pdf

In their Integrated Sustainability Report 2022, CDL talks about their reduction strategies to attain the goal of decarbonising towards net zero, guided by various globally-recognised disclosures such as TCFD, SASB and CDSB. They also share their determination to drive innovation and building performance, and create inclusive business environments and develop sustainable communities.

This report was originally published in https://www.cdlsustainability.com/pdf/CDL_ISR_2022.pdf

This paper from MSCI examines the challenges presented by both climate change and the net-zero transition to investors looking to measure and manage climate risk in their portfolios. Effective management of climate risk requires a clear understanding of its multifaceted nature.

Broadly speaking, climate risk can be broken down into physical risk and transition risk, and it can impact companies and investors via both microeconomic and macroeconomic transmission channels. The transition to net-zero depends on many factors: policymakers’ decisions, the development and economic feasibility of green technologies, investors’ attitude toward climate risk and net-zero investing and consumers’ sentiment toward low-carbon consumption. This and the long horizon mean that investors face an elevated level of uncertainty when making investment decisions.

One approach is to undertake forward-looking scenario analysis, in which various outcomes for uncertain factors such as policy decisions and the development of green technology can be explored, along with their financial impacts. This is becoming a standard tool for climate risk analysis, supported by major organizations such as TCFD.

In this paper, the MSCI Climate Value-at-Risk (Climate VaR) metric is used to examine climate risk in a set of hypothetical portfolios and explore a few strategies to reduce that climate risk. A second approach could be to incorporate a carbon-emission factor in equity risk models to help quantify the impact of emissions on portfolio returns.

As more investors begin to consider the risk of climate change when making investment decisions, financial markets may see a reallocation of capital from carbon-intensive to carbon-efficient investments — and companies’ emission profiles may emerge as a systematic driver of equity returns. Although climate risk management is not yet widespread among investors or fully standardized by regulation, industry trends are pointing in this direction. Investors may therefore wish to be aware of existing approaches for measuring and managing climate risk. 

This report was originally published in https://www.msci.com/www/research-paper/net-zero-alignment-managing/03147524351

This paper from MSCI seeks to lay out some fundamental principles and best practices for ESG reporting of short positions at a portfolio level, based on the results from MSCI’s consultation with over 20 market participants globally. It also explores related issues that influenced market participants’ views on this topic, including cost of capital, shareholder ownership, engagement and regulation.

The most important principle for long-short portfolio ESG reporting is transparency. Transparency allows both regulators and clients to more accurately assess the ESG risks and opportunities to which the fund is exposed on both the long and the short sides of the portfolio. The main difference in investor views on reporting short positions was whether the investor was assessing a company’s real-world impact or if they were focused solely on its ESG risk/return metrics.

In general, asset owners, asset managers and hedge funds agree that reporting for ESG transparency is different from reporting for ESG risk exposure, with both being important in meeting different ESG investment reporting objectives. It is therefore recommended that long-short portfolios report ESG and climate metrics separately for both the long and short legs, in addition to any preferred aggregation schemes, as this allows the greatest transparency and flexibility for aggregate portfolio reporting under both a double and financial materiality assessment.

This report was originally published in https://www.msci.com/www/research-paper/esg-reporting-in-long-short/03136460396