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The long road to ESG integration: a selector’s story

The long road to ESG integration: a selector’s story

The final frontier of ESG will be full integration into screening processes. Olivier Couvreur of ABN Amro reveals how the company’s approach to this growing sector has changed.

The latest development in our selection process has been to fully integrate ESG factors into our analysis. We now include a broader and more defined analysis of these features into every search.

When we started selecting SRI strategies in 2003, there was nothing specific to use in terms of research. We simply conducted a very standardised selection process within a dedicated SRI fund universe.

Our selection methodology has evolved over time and we added specific questions in order to assess funds’ ESG qualities. In 2012, we were able to develop a separate rating system for ESG processes, which was similar to how we rated the fund’s investment capabilities.

Our ESG ratings examined the strategy’s dedicated resources, the size and quality of the teams involved, the specific analytical processes, the portfolio characteristics, the tools and several other factors. This new rating system was a good way for us to set a minimum standard for all SRI-approved investment strategies.

More recently, we have expanded the ESG factors that we look into, and have integrated the ESG questions related to these factors into our standard questionnaire. ESG is no longer a separate subject solely required on SRI funds, but a core part of our overall analysis. It is very extensive, and represents around one third of the questions we ask investment managers.

This is the first step towards a general ESG rating for every investment strategy, which could well come about in the near future. Our clients haven’t requested this yet, but we are preparing ourselves because this is where the trend is going.

One assessment that is already generalised is our gauge of how seriously asset management companies take ESG. Our standard starting point is whether that company is a UN PRI signatory, but a portion of our analysis reports is dedicated to judging what these companies are doing in this field, and making sure that even non-signatory groups have set up sufficient processes along these lines.

These comments originally appeared in a supplement published with the July/August edition of Citywire Selector magazine.