To support our clients as ESG moves into mainstream investing, we are launching Barclays Fundamental ESG Research. This new pillar will complement the two existing pillars of Barclays ESG Research: our Thematic ESG Research, from our Sustainable & Thematic team and our Systematic ESG Research, from our Quantitative Portfolio Strategy team.
These three pillars of Barclays ESG Research will feed into and inform each other to produce new and actionable ESG insights that enable investors and asset owners to assess the extent of adoption of ESG principles by the companies we cover; the impact of regulatory and consumer change on markets and industries; and how and to what extent adoption of ESG is influencing the performance and valuation of securities.
In the 15 years since ‘environmental, social and governance’ was coined as a term by the UN Global Compact, ESG investment has grown from a niche position to one that influences tens of trillions of dollars in assets under management.
This has been driven by asset owners who increasingly wish to align their investment decisions with their own values. ESG factors capture non-financial information that is material to financial performance, as well as regulations and voluntary codes such as the UN’s Principles for Responsible Investment (PRI) that require investment managers to report on ESG considerations.
Yet there is a significant ‘aspiration gap’ between the amount of AUM that falls under the umbrella of high-level commitments such as the PRI and the de facto implication of ESG constraints on investment processes. In our view, closing this gap is set to be the biggest driver of ESG adoption over the next few years. In particular, we think that asset managers and owners will be increasingly pressed to embed ESG considerations into all the money that they manage – not just specialist ESG funds.
Barclays Fundamental ESG Research will support the three core approaches used by investors to integrate ESG into their portfolios:
Finally, for investors focussed on direct corporate engagement as a means to improve ESG standards, our fundamental research will seek to highlight areas of weakness and opportunities for improvement at the company level.
We believe our three-pillared approach, combining fundamental, thematic and systematic ESG research comprehensively reflects the balance of the ESG ecosystem. With our thematic and systematic research teams having already built up a body of analysis and opinion – which we summarise in this report – we are well positioned to deliver differentiated and actionable insights that can help investors more successfully align their investment choices with their ESG goals and values.
Investigation into the performance effect of Environment, Social and Governance (ESG) ratings on sector-specific bond portfolios.