New report highlights best practices in ESG integration across EMEA

CFA Institute and the PRI held nearly two dozen workshops around the world to better understand global, regional, and individual market ESG integration practices. The new publication builds on the work of two earlier reports, ESG Integration in the Americas: Markets, Practices, and Data, and Guidance and Case Studies for ESG Integration: Equities and Fixed Income, published in September 2018. The final report in the series, covering the Asia-Pacific region, will be published later in 2019.

The report series will help investors learn from their peers about best practices for ESG integration across different asset classes, while also exploring the drivers of and barriers to ESG integration in global markets.

• There is no “silver bullet” or single form of best practice to enable ESG integration.
• Investors should focus on ESG analysis rather than ESG investing (often used as a term to market the ESG concept), as a fundamental component of investment analysis because it requires a disciplined and data-driven approach to be fully integrated into the investment process.
• Although portfolio managers and analysts are more frequently incorporating ESG into the investment process, they rarely adjust their models based on ESG data.
• The main drivers of ESG integration are risk management and client demand; the main barriers to ESG integration include a limited understanding of ESG issues and a lack of comparable ESG data.
• Governance is the ESG factor which most investors are incorporating into their process, although environmental and social factors are gaining traction.
• ESG integration is more advanced in equities than fixed income.

  “The most sophisticated ESG integration is currently taking place in EMEA as many analysts and asset owners in Europe have been pioneers in ESG integration for years,” said Paul Smith, President and CEO of CFA Institute. “We hope this report and the other reports in this series can offer guidance to investors and analysts around the world looking for best practices in ESG integration.”

  “The research shows that asset owners and investment managers should be working much more closely and sharing information on how and why they integrate ESG data into the investment process,” said Fiona Reynolds, CEO of the PRI. “Investors and companies also need to work together to promote the standardization of ESG data.”

The series of reports is based on a research methodology including:

• Surveying 1,100 financial professionals, predominantly CFA Institute members, around the world;
• Conducting 23 workshops in 17 major markets;
• Interviewing hundreds of practitioners and stakeholders;
• Publishing 33 case studies written by equity and fixed-income practitioners;
• Analyzing ESG company disclosure scores provided by Bloomberg;
• Reviewing data from the PRI’s reporting framework, the largest global database of information on investors’ ESG practices.