5 ways to better engage on ESG—through impact

ESG Engagement is not limited to Proxy Voting policy!

Are you a responsible investor willing to influence the ESG performance of a company you invested in ? Then “Engagement” is probably one of the tools you are using to try to achieve this end.

But the fact is that, today, Engagement has little or no impact on companies’ ESG performance. In most of the cases, the so-called “Engagement” is unfortunately limited to the definition of the Proxy voting policy of the professional investor for the shareholders General Meeting. This is so true that the communication of Asset Managers in their Engagement Reports usually only provides, as key indicators, the respective percentage of votes: FOR, AGAINST, ABSTAIN…

By the way, and as an example, according to a study published by Majority Action in 2019, the 25 largest Asset Managers, during the 2019 general meeting of the Energy and Utilities sector, didn’t systematically vote for the climate resolutions…

Anyway, voting against a company resolution is not truly engaging with a company on its ESG performance: It’s too late. A responsible investor should engage early with companies in its portfolio, in order to have a chance to really influence the policies and operations of companies—for the benefit of us all.

Better Engage on ESG performance, through impact

To go beyond Proxy Voting policies will require to start a true Engagement process through a mid/long-term discussion between interested parties, and build on trust.

And, as a Responsible Investor, looking at the ESG impact performance can offer you several, and non-exclusive, approaches to improve your engagement process—and here is some of them.

1. Identify ESG weaknesses and strengths

Identify a company’s ESG weaknesses and strengths, using ESG impact areas rating, and then target your engagement effort around ESG impact themes: Gender Equality ? Energy consumption ? Tax evasion ? etc.

2. Track ESG progress and trends

Using the historical part of the available ESG impact ratings of a company, track its progress on the several ESG topics of interest identified. Does the ratio of hazardous waste increased ? The proportion of women in management decrease ? These kind of signals can trigger your discussion with the company, based on facts.

3. Benchmark the ESG performance amongst peers

Benchmarking the position of the company ESG impact performance, relatively to its peers within sub-industries, geographies, and other relevant dimensions, will provide you with interesting insights. You could then focus, for instance, your Engagement process on the companies with the greater room for improvement, or foster thematic Engagement on specific developping countries—depending on your Engagement objectives, and Core Values.

4. Converge on quantitative performance indicators

During the discussion phase with a company, within the engagement process, you will be able to propose, discuss, and engage with the company on the improvement of quantitative and positive impact indicators — e.g. percentage of women in management, percentage of renewable in the energy mix, etc.—i.e. you will be able to track facts, and not intentions.

5. Divest—progressively

An Engagement process, obvisouly, takes time. But, ultimately, if the engagement fails, after several cycles, and the company doesn’t demonstrate its willingness to improve its ESG performance—based on quantitifed results—, then, as a Responsible Investor, you should take responsibility for your investment, and also for your end-customer—which might have selected you for your strong ESG values—, and thus divest, from the company, probably progressively, in order to demonstrate your convictions, and allow the company to alter its negative ESG strategy during the process.

ESG Engagement: a responsible investor’s duty 

At IMPACTIN, we think that the current situation regarding Engagement—focused on poorly efficient Proxy Voting policy—is not a fatality, and that another approach is possible.

The ESG impact ratings, available today, empower the Responsible Investors, and provide them with the right tools to better select the more relevant companies in their portfolio, and truly engage on the improvement of specific, quantitative, measurable indicators of positive impact.

As Responsible Investors, you have the power to redirect the investment flows to have a real positive impact on our planet and society. Money, through finance, is a great lever, maybe the greater of all—and remember Archimedes’ saying : “Give me a lever long enough and a place to stand and I will move the earth“. The transition towards a more suistanable economy thus lies in your hands.


3 incoming regulations in Sustainable Finance—will investors be ready ?

Within the coming two years, several regulations on Sustainable Finance will come into effect, which will directly affect the Asset Management, Insurance, and Pension Funds activities. All of those evolutions are emerging from the overall “EU Green Deal” context, and from EU working groups on Sustainable Finance and Sustainable Insurance.

But will concerned businesses be ready ? Already, concerns have begun to be issued. On June, the 9th, several european banking, insurance, and pension funds associations wrote a joint letter to the European Commission, calling for a “centralized register for environmental, social and governance (ESG) data in the EU“, in order to be able to fulfill incoming regulatory reporting obligations… Let’s take a brief look at what is coming.

March 2021: EU Disclosure Regulation

In March 2021, the EU regulation on sustainability‐related disclosures (known as the “Disclosure Regulation”) will become applicable. The regulation will require financial market participants and advisers to provide investors with pre-contractual ESG-related information linked to specific financial products. The objective is to allow investors to make their investment decisions also on the basis of ESG insights.

For instance, regarding positive impact investments, the regulation states that “As regards financial products which have as an objective a positive impact on the environment and society, financial market participants should disclose which sustainable benchmark they use to measure the sustainable performance and where no benchmark is used, explain how the sustainable objective is met“.

2021: MiFID II and the IDD

Expected to be adopted in 2021, the EU Markets in Financial Instruments Directive (MIFID II) and the Insurance Distribution Directive (IDD) regulations focus on ESG considerations . Both amendment initiatives aim indeed at integrating sustainability risks and factors into the investment process.

More precisely, the objective of the IDD, for instance, is to “create a mandatory requirement to take into account ESG preferences in the advisory process (both in the customer profiling and product selection).

Jan. 2022: EU Taxonomy

Finally, the EU Taxonomy for Sustainable Finance will come into effect in Jan. 2022: this regulation  aims to introduce an EU-wide classification system for ESG-related investments. Now adopted by the European Council, the agenda aims to establish the taxonomy by the end of 2020, with full application by the end of 2021.

The taxonomy will “create the world’s first-ever “green list” – a classification system for sustainable economic activities – that will create a common language that investors can use everywhere when investing in projects and economic activities that have a substantial positive impact on the climate and the environment“.

A core objective: Positive impact

A first good point, is that all the initiatives aim at measuring and reporting the environmental and climate impact, in order to contribute to tackle the Climate Change issues. The second good point, is that the objective is wider and not restricted to the environment: all ESG impacts will need to be explained, and reported—the target is the measurement of the overall “sustainable performance”, in order empower the end investors in their investment decisions.

We cannot agree more this mission statement, underlying the regulation—and this will also address the current transparency issue. The challenge investors are now facing is the way to evaluate the ESG impact of their investments. The current ESG rating approaches available on the market cannot provide an evaluation of the impact, and instead offer “an aggregate confusion“, usually anchored in intention- or policy-checking, and subjectivity…

But another approach is possible—and it must rely on quantitative ESG data analysis for a factual positive or negative impact evaluation.

Will investors be ready ? The recent joint letter from the financial investment industry seems to indicate the contrary. But if we don’t yet have the definitive answer to this last question, on our side, we already planned, and developped ESG impact rating solutions to help investors comply, be transparent, and credible.

Portfolio ESG Impact scorecard—the IMPACTIN way

Are you an Asset Manager or an investor wanting to understand the real impact of your fixed income or equity portfolio ? Or maybe do you want to measure the physical risk and mitigation or transition impact of your Real Estate portfolio ? Do you need to measure the alignment of your portfolio vis-à-vis the 17 SDGs ?

Then the whole IMPACTIN team is pleased to announce the launch of our Portfolio ESG Impact & Climate Change Scorecard to you. We designed this scorecard to provide both the positive or negative ESG impact of a portfolio through several dimensions, and provides physical risk, climate mitigation and adaptation scores.

The following ESG performance scores are provided for any scored portfolio, with their associated trends:

  • ESG impact rating scores (x4);
  • ESG Smart Areas scores (x11): Infrastructure, Building, Education, etc.
  • SDG alignment scores (x18);
  • 5P scores (x6) — where 5P stands for Planet, People, Prosperity, Peace, and Partnership;
  • Climate Change scores (x5): Mitigation, Adaptation, Physical Risks and Transition score;
  • Rating class (AAA – D).

It allows both to benchmark a portfolio vis-à-vis market indexes and funds, to promote your fund impact performances respectively to other competitors, and clearly disclose your funds ESG impact to your end customers.

Please contact us for detailled information, discussion and samples!

Climate Change and Physical Risk scored for 1554 territories featured in IMPACTIN last dataset

The IMPACTIN Countries and Territories Climate Change and Physical Risk Mitigation and Adaptation Rating dataset is our new Data Product available on the DAWEX data marketplace.

Our Climate Change Adaptation and Climate Change Mitigation ratings are based on guidelines from the EU Taxonomy for Sustainable Activities framework and the EEA, on both topics. The EEA is the European Environment Agency of the European Union.

Climate Change Mitigation means the reduction or prevention of the emissions linked to human activities, such as, e.g., CO2 and GHG, or fluorinated gases (F-gases), whereas the Climate Change Adaption regards actions to adapt to the impacts of climate change, already happening: flooding, droughts, sea level rise, wild fires, rainfall patterns alteration, etc.

Climate change is already happening […] This leads to many adverse impacts on ecosystems, economic sectors, and human health and well-being. Therefore, actions to adapt to the impacts of climate change are paramount and should be tailored to the specific circumstances in different parts of Europe

— European Environment Agency

This dataset provides 14 climate change and physical risk scores and trends for 1554 territories, i.e. countries, regions or cities, for a total of 21,756 data points. The following numbers of territories are covered:

  • 200+ countries,
  • 650+ regions,
  • 600+ cities (urban areas).

The scores and data included in the dataset provide the following information, for each territory featured:

  • Territory general information: code, name, country, population, geographical coordinates, etc.;
  • Climate Change score;
  • Climate Change Mitigation score;
  • Climate Change Adaptation score;
  • Physical Risks score: exposure to natural hazards such as flood, droughs, tsunami, etc.;
  • Climate Change Transition score;
  • Rank in territory group (countries, regions, cities);
  • Rating class.

The associated data theme is available on the DAWEX marketplace, feel free to contact us for a sneak peek at the data offer online: dataset content, samples, dataset structure, cities and regions coverage maps!

IMPACTIN Countries ESG Impact rating available on the DAWEX data marketplace

Our core business is to measure the ESG impact for the Sustainable Finance needs, and to this end we just released our countries ESG impact rating for the first quarter of 2020.

The IMPACTIN Countries ESG Impact Rating dataset contains 48 impact scores and their trends, for 218 countries, i.e. a total of 20,928 data points organized in 8 domains:

  • ESG Impact ratings;
  • 5P ratings — Planet, People, Prosperity, Peace, Partnership,
  • Environment Smart Areas ratings;
  • Social Smart Areas ratings;
  • Governance Smart Areas ratings;
  • Transition ratings;
  • 17 SDGs Contribution ratings;
  • Groups ratings (economical and geographical groups).

The dataset comes with a 200+ pages-long Countries ESG Impact Profiles report, and is now available on the DAWEX data marketplace — see our company page and data themes for more details, and feel free to contact us for access on more information on our data offers.

The DAWEX platform is a leading and multi-awarded data marketplace, allowing a totally secure and scalable data exchange.

A unique countries ESG rating on the market

The IMPACTIN Countries ESG Impact Rating dataset offers many advantages vis-à-vis other market offers available:

  • 218 countries featured — i.e. 20% to 65% more countries than market competitors
  • 87% of ISO Countries covered
  • 100% of larger sovereign bonds emitters covered
  • 7 Geographical Regions 100% covered
  • 4 Income Groups 100% covered
  • 20,928 indicators (scores and trends)
  • ESG impact scores vs. ESG risk scores
  • Indicators-based vs. criteria-based
  • Quantitative, objective, and repeatable approach vs. qualitative and subjective rating
  • Quarterly updates vs. Yearly
  • 218 Country ESG Impact profiles featured in a report
  • Pre-filtered geographical regions and income groups ratings, and associated geographical maps.

The case for an ESG impact rating of countries

After decades of experience in the field of extra-financial evaluation, CSR, SRI and Sustainable Finance in general, we were not satisfied with the solutions available on the market: we found there too much subjectivity, a heterogeneous quality in the ratings, a too long duration between the updates, a risk-based approach not aligned with the necessity to track and demonstrate the real impact of an investment, etc.

Investing for sustainability impact is the new frontier for responsible investment, with a stronger focus on how investment decisions have real world impact on ESG factors over financial materiality

— PRI CEO, Fiona Reynolds, Dec. 2019

For the here above reasons, we decided to craft our own approach: after months of research and development we ended with our proprietary methodologies of ESG Impact rating, for countries, territories and cities, listed companies, and investment portfolios: IMPACTIN was born, with the vision that Impact Investment is the next step for Sustainable Finance, and that high-quality Impact ratings are required to fuel the development of the growing Impact Investment landscape.

The IMPACTIN Countries ESG Impact Rating dataset solution is one of our ESG Impact Rating dataset solutions, providing 48 impact scores and their trends for 218 countries, allowing to individualize the impact of countries through many dimensions: Smart Infrastructures, Smart Health, Prosperity, Climate Change Transition, contribution to the 17 SDGs, etc.

We have several other data products on their way, which will be released in the coming weeks — stay tuned!

IMPACTIN joins Tech For Good France

Tech For Good France is the French network of entrepreneurs and investors involved in the delopment and financing of technological and digital solutions fostering the transition towards a more sustainable and responsible society.

We are delighted to announce that our application to join the network has recently been accepted, and that IMPACTIN is thus now an official member of the association! and we take the opportunity to thank the members of the board for that.

Since our ESG Impact rating approach is rooted in Sustainable and Responsible Finance expertise, leveraged thanks to Data and Digital technologies, it seemed natural to become part of a network of doers and investors sharing the same interests.

Let’s hope that in the aftermath of the Covid pandemics, we will collectively choose to deflect the course of our society towards Sustainability, and Sustainable Finance more particularly — and the Tech For Good, i.e. the positive and responsible use of technology for the society and the environment, can probably be a key to unlock this future.

We are eager to meet the members, and start to network, and get feedback, for the greater good! Stay tuned!

IMPACTIN selected for Les Ambitieuses Tech For Good Grand Finale 3rd edition

In spite of the difficult situation the world has been facing these last weeks, we had the recent opportunity to be selected to participate, early March, to the Grand Finale of the startup acceleration program “Les Ambitieuses” Tech For Good, organized by La Ruche.

The program is dedicated to impact startups, with at least a women cofounder, a tech-based solution, and a proof of market.

This allowed two of us to participate to a very interesting and well organized 2-days long training, the 10 and 11 of March, with all the other finalists selected among 90 candidates — a Bootcamp — in order to network, challenge our value proposal, to discover or reiterate with some entreneurships tools, and finally to be train to become “Serial Pitcher“!

Unfortunately, this time, we have not been selected as one the 8 winners of the award — but this experience allowed us to attend a 2 days-long training very relevant for us, to challenge our business plan, to better prepare our investor pitch and deck, and, above all, to become part of a network of wonderful women, all committed to be build a better world, throught their impact businesses. And for this, we thanks all the very professionnal and skilled people of La Ruche for the quality of the bootcamp program.

Congratulations to all of the participants, girls, you are amazing!

The reign of ESG funds quantity, and the signs of the times

According to the Novethic indicator, published last week, the offer of sustainable funds is massively growing in France, combined with an always more demanding retail market. This situation is not unique in Europe: the same trends are reflected in the national markets of countries such as Italy, Spain, or the United Kingdom, etc. The trends and market data are furthermore indisputable: in 1 year, between Dec. 2018 and Dec. 2019, the number of sustainable funds has grown from 438 to 704, and AUM have almost doubled, from €149bn to €278bn.

There is indeed a very strong momentum for Sustainable Finance, and especially for Thematic Funds, representing a quarter of the offer, but with a greater collection ratio (45%) compared with non-thematic sustainable funds.

So far, so good, we might say, but, but, unfortunately, quantity is not a synonym for quality. Behind the scene, for most of all these “so-called” sustainable funds, the situation is far from brilliant, when the ESG criteria’s quality is investigated… with a transparency almost lacking.

The french “Label ISR” (SRI Label) as so far been granted to 263 funds, among other certified funds with a national label. This kind of label is supposed to be the first step on the way towards a greater transparency, but it is still, today, not sufficient to be fully trusted, and here is why: the Label ISR only ensures that a selection process exists, and that it integrates ESG criteria. The rest is left a the discretion of the fund manager: how the process is applied, what are the thresholds, etc. For instance, a Label ISR fund doesn’t need to be 100% ESG-compliant. No opinion is provided by the certification authority on the companies composing the funds, or the quality of the method used, the existence of positive or negative impact metrics or score… And regarding the non-labelized sustainable funds, the situation is even worst and more obscure… with sometimes only a slight “greening” for some new or existing funds…

These are some of the reasons why the EU Taxonomy, and the future EU Label, are more than welcome. Let’s hope they will both help to provide more transparency in sustainable finance, and foster a truly sustainable investment approach. The risk faced, once again, is the generalization of greenwashing to gain market shares, which will end in the disillusion of the retail investor and strip the sustainable finance market of its whole credibility…

Until then, quantity will continue to prevail over quality, as a sign of the times.

Bloomberg, One Planet SWF Paris, and the rise of ESG integration to country risk

As the poet said, nothing is more powerful than an idea whose time has come. And the two last weeks probably demonstrated that the time for ESG criteria integration into country rating might have come…

Last week, we attended the One Planet Sovereign Wealth Funds initiative reception, being held in Paris, at the Shangri-La hotel, and co-organized by Bloomberg. Since 2017, the SWFs have been working to accelerate efforts to integrate financial risks and opportunities related to climate change in the management of sovereign funds and large assets. Their moto: “Integrating Climate Change Risks and Investing in the Smooth Transition to a Low Emissions Economy“. Bloomberg, through GBF, the Bloomberg Global Business Forum, is also committed to improve social and economic wellbeing in the coming decades. During the dinner, were 200 people from different countries gathered, discussions focused on the climate change urgency, and the need to take action, with no further delay.

Nothing is more powerful than an idea whose time has come.

— Victor Hugo

The very same week, the day before the reception, Monday the 28th, Euler Hermes became the first credit insurer to add ESG criteria to country risk methodology, according to Ludovic Subran, Chief Economist at Allianz. Of course, we couldn’t agree more with this rising market trend, since, during the second semester of 2019, we had been researching this topic, and ended with our own proprietary methodology. Our ESG Impact Rating for countries was the thus the first product we developped, and released, last November. And, indeed, January the 19th, we published our own view on the subject: “Countries ESG impact rating: should it be integrated into credit rating?“.

Well… time is on our side, yes it is!