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Investors’ Top 5 ESG Challenges

by Sponsored Content

The following content is sponsored by iShares by BlackRock.


Long-form infographic showing the top ESG challenges investors face: transitioning your portfolio, making sense of the data, choosing the right product, the emerging climate trend, and company engagement.

Investors’ Top Five ESG Challenges

Investors in Europe, the Middle East and Africa (EMEA) expect to dramatically increase their sustainable assets. In fact, sustainable assets are projected to grow from 21% of total assets in 2020 to 47% of total assets in 2025.

In this graphic from iShares by BlackRock, we outline the top five ESG challenges that European investors face amid this shift.

1. Transitioning Your Portfolio

Building a sustainable portfolio tailored to specific requirements can be time consuming, and the financial and sustainable impact may be unclear.

iShares’ approach: iShares offers transparency for investors across all their sustainable exchange traded funds (ETFs). Investors can evaluate a fund based on various sustainability characteristics on iShares ETF product pages. They can also build a portfolio using sustainable ETFs as core building blocks.

For investors looking for a ready-made portfolio, 80% of the assets within BlackRock’s Multi-Asset Portfolio ESG ETFs seek to track indices that meet certain ESG criteria.

2. Making Sense of the Data

Investors must be able to find and interpret ESG data so they can assess the measurable output of their investments.

iShares’ approach: At iShares, they are driving a push for standardisation across the industry to bring consistency and transparency to all investors. In 2021, they leveraged over 1,200 sustainability metrics within Aladdin, their risk and portfolio management system. They also strengthened multiple partnerships with data analytics firms.

3. Choosing the Right Product

Almost 50 new sustainable ETFs (Read more...)

Understanding Global Demand for Steelmaking Coal

by Sponsored Content

The following content is sponsored by Teck

Steelmaking Coal Infographic

Understanding Global Demand for Steelmaking Coal

Global population growth, increased urbanization, and a growing middle class will continue to drive long-term demand for steel and the steelmaking coal required to produce it.

The above infographic from Teck outlines the mineral’s key role in the low-carbon future.

A Vital Ingredient

Steel is the most commonly used metal and fulfills a variety of structural and construction needs, along with being an essential material for the production of vehicles, mechanical equipment, and domestic appliances.

Clean and renewable technologies also require steel to build wind turbines, solar panels, tidal power systems and bioenergy infrastructure.

ApplicationQuantity of steel (kg)Quantity of steelmaking coal (kg)
Refrigerator6948
Microwave139
Gas Stove6848
Vehicle900630
1 km of Light Rail Track112,00078,400
40-Foot Shipping Container4,0002,800
Boeing 787-10 Aircraft13,5009,450
High-Voltage Transmission Tower27,00018,900
Wind Turbine260,000170,000

While some kinds of steel can be made using recycled metal, roughly 72% of global steel production relies on steelmaking coal and certain higher grades of steel can only be made using the ingredient.

How is Steel Made?

Also known as metallurgical coal or coking coal, steelmaking coal is mined to produce the carbon used in steelmaking. This is fundamentally different from thermal coal, which is used to make steam that generates electricity.

To make steel, the coal is first heated at around 1100°C to remove water and other chemicals, without the (Read more...)

Impact Investing: Building a Better World

by Sponsored Content

The following content is sponsored by BlackRock.

Typically, an investor’s main objective revolves around building wealth and then turning that wealth into an income generator. As a result, financial returns are accepted as the default performance metric.

But what if investing could also address the world’s most pressing social and environmental problems?

More Than Investing

This infographic from BlackRock introduces the concept of impact investing and explains why it can be a force for good.

impact

BlackRock Impact Investing

What Does Positive Impact Look Like?

Impact investing is a sustainable investing approach that combines the intention to generate positive returns with positive, measurable social and environmental outcomes.

To understand what these outcomes actually look like, here are some highlights from the companies that the BlackRock Impact Team invests in.

  • 102,000 GWh of renewable energy generated
  • 11 million metric tons of food waste mitigated
  • 114 million individuals empowered with access to financial services
  • 99 million people given access to clean drinking water
  • 600,000 families given access to affordable housing
  • 1.8 billion patients given access to affordable healthcare

These outcomes were generated in 2020, and help to make our world a better place.

The Three Pillars of Additionality

For impact investing to be an effective strategy, investors must be able to accurately measure the positive outcomes their capital is helping to create. A company may claim to be aligned with the UN Sustainable Development Goals (SDGs), but its actions may not be making a real world difference.

“Alignment to the SDGs is not enough to (Read more...)

An Introduction to MSCI ESG Indexes

by Sponsored Content

The following content is sponsored by MSCI

Visualizing Investment Data

An Introduction to MSCI ESG Indexes

There are various portfolio objectives within the realm of sustainable investing.

For example, some investors may want to build a portfolio that reflects their personal values. Others may see environmental, social, and governance (ESG) criteria as a tool for improving long-term returns, or as a way to create positive impact. A combination of all three of these motivations is also possible.

To support investors as they embark on their sustainable journey, our sponsor, MSCI, offers over 1,500 purpose-built ESG indexes. In this infographic, we’ll take a holistic view at what these indexes are designed to achieve.

An Extensive Suite of ESG & Climate Indexes

Below, we’ll summarize the four overarching objectives that MSCI’s ESG & climate indexes are designed to support.

Objective 1: Integrate a broad set of ESG issues

Investors with this objective believe that incorporating ESG criteria can improve their long-term risk-adjusted returns.

The MSCI ESG Leaders indexes are designed to support these investors by targeting companies that have the highest ESG-rated performance from each sector of the parent index.

For those who do not wish to deviate from the parent index, the MSCI ESG Universal indexes may be better suited. This family of indexes will adjust weights according to ESG performance to maintain the broadest possible universe.

Objective 2: Generate social or environmental benefits

A common challenge that impact investors face is measuring their non-financial results.

Consider an asset owner who wishes to (Read more...)

Visualized: The Power of a Sustainable Investment Dollar

by Dorothy Neufeld
This post is by Dorothy Neufeld from Visual Capitalist

Sustainable Investment

Visualizing the Power of a Sustainable Investment Dollar

Sustainable investments are booming.

Between January and November 2020 alone, investments in sustainable ETF and mutual funds grew 96%. The UN Principles of Responsible Investment now has over 3,000 signatories representing over $100 trillion in assets. The U.S. Commodity Futures Trading Commission established a Climate Risk Unit to analyze climate risk across derivative markets, and as of March 2021, new sustainability disclosures have come into effect in Europe.

But how do we know if sustainable investments have made a difference?

To answer this question, the above infographic from MSCI examines the effect of a sustainable investment dollar by looking at real-world examples.

A Sustainable vs. Unsustainable Dollar

To start, investing legend Benjamin Graham has compared the stock market to a “voting machine.” Just as consumers vote with their purchasing decisions, investors vote with their investment dollars. Especially in the short term, as more dollars flow to sustainable companies, this builds their exposure and access to capital.

In the long term, meanwhile, the market can be compared to a weighing machine. The market recognizes companies with profitable business models that improve their intrinsic value over time. Ultimately, this allows sustainable companies to expand and continue operating.

Given the rising momentum in both green assets and climate targets, here is how investment dollars have influenced and driven change across three industries.

1. Clean Energy vs. Fossil Fuel

Over the last several years, the energy sector has been associated with many of the (Read more...)

Visualized: The Top 5 Questions on Sustainable Investing for Advisers

by Dorothy Neufeld
This post is by Dorothy Neufeld from Visual Capitalist

Sustainable Investing

Visualized: The Top Five Questions on Sustainable Investing

Today, the surge in green investing has been compared to the dot-com boom of the 2000s.

Back then, the internet was anticipated to radically reshape economies. Many companies fell to the wayside, and now 20 years later, tech stocks currently make up roughly 40% of the S&P 500 by market capitalization. Like the dot-com era, green firms are projected to structurally change the way businesses function.

Given the rising interest in green assets, this infographic from MSCI answers the most important questions advisers need answered on sustainable investing.

1. Which type of sustainable investing is right for my client?

First, let’s start with the basics—understanding the terms used to describe sustainable investing:

  • Sustainable investing: An umbrella term that typically refers to all types of sustainable, impact, and environmental, social, and governance (ESG) integration approaches
  • Impact investing: A type of investing approach that generates measurable social or environmental benefits
  • Socially responsible investing (SRI): An investing approach that aligns with an investor’s ethical, religious, or personal values, while actively reducing negative environmental or social consequences
  • ESG integration: Considers material environmental, social, and governance factors to enhance long-term risk adjusted returns through its investment approach
  • Climate investing: Looks to reduce exposure to climate risk, identify low-carbon investment opportunities, or align portfolios with “net-zero” climate targets

Knowing the key terms of the sustainable landscape allows advisers to more accurately address client objectives, goals, and beliefs.

2. How can I start a conversation with clients about (Read more...)

ESG Municipal Bonds: The Next Sustainable Opportunity

by Sponsored Content

The following content is sponsored by Wells Fargo Asset Management.

ESG Municipal Bonds: The Next Sustainable Opportunity

When you think of sustainable investing, does your mind immediately go to stocks? Sustainable investing may have started in equities, but it’s now expanding into a variety of specialized asset classes—including municipal bonds.

In this infographic from Wells Fargo Asset Management, we highlight the growth of ESG (environmental, social, governance) municipal bonds and how investors can identify them.

A Growing Shift to ESG Bonds

Over the past decade, ESG municipal bond issuances have had a compound annual growth rate (CAGR) of more than 70%.

YearGreen and social municipal bond issuance
2011$164M
2012$237M
2013$332M
2014$2.1B
2015$4.8B
2016$7.8B
2017$11.2B
2018$4.8B
2019$11.7B
2020$19.7B

Source: Morgan Stanley Research, Bloomberg

Issued by state and local governments, these bonds often have a positive impact on society or the environment. For example, ESG municipal bonds can be used for affordable housing or renewable energy.

Which factors are propelling their growth?

  • COVID-19
    Amid pandemic-related volatility, credit rating agencies have highlighted the importance of non-financial risk factors. From April to November 2020, 33% of credit rating actions among U.S. public finance entities were related to ESG. To mitigate risks, a growing number of investors are adopting sustainable strategies.
  • Social movements
    Calls for equity have put a focus on investing in underserved communities, such as those with low-income populations or higher proportions of people of color. ESG municipal bonds (Read more...)

Fact Check: The Truth Behind Five ESG Myths

by Dorothy Neufeld
This post is by Dorothy Neufeld from Visual Capitalist

ESG Myths

Fact Check: The Truth Behind 5 ESG Myths

In 2021, investors continue to embrace environmental, social, and governance (ESG) investments at record levels.

In the first quarter of 2021, global ESG fund inflows outpaced the last four consecutive quarters, reaching $2 trillion. But while ESG gains rapid momentum, the CFA Institute shows that 33% of professional investors surveyed feel they have insufficient knowledge for considering ESG issues.

To help investors understand this growing trend, this infographic from MSCI helps provide a fact check on five common ESG myths.

1. “ESG Comes at the Expense of Investment Performance”

Fact Check: Not necessarily

Worldwide, ESG-focused companies have not only seen higher returns, but stronger earnings growth and dividends.

Returns by ESG RatingsEarnings Growth*Active Return**Dividends and Buybacks
Top tier2.89%1.31%0.28%
Middle tier1.35%0.12%-0.02%
Bottom tier-9.22%-1.25%-0.05%

Source: MSCI ESG Research LLC (Dec, 2020)
*Contribution of earnings growth and dividends/buybacks to active return
**Active return is the additional gain or loss compared to it respective benchmark

In fact, a separate study from the CFA Institute shows that 35% of investment professionals invest in ESG to improve their financial returns.

2. “Investors Talk About ESG But Don’t Invest In It”

Fact Check: False

Global ESG assets under management (AUM) in ETFs have grown from $6 billion in 2015 to $150 billion in 2020. In just five years, ESG AUM have accelerated 25 times.

Today, money managers are focusing on the following top five issues:

(Read more...)

Inside ESG Ratings: How Companies are Scored

by Sponsored Content

The following content is sponsored by MSCI.

ESG Ratings

Inside ESG Ratings: How Companies are Scored

Back in 1972, environmental, social, and governance (ESG) investing had a long way to go.

At the time, ESG research was a nascent field, but it paved the way for the booming investment strategy. Now, it is estimated that one in every three investments in the world will be ESG-mandated by 2025—with assets projected to reach $53 trillion.

This infographic from MSCI shows what’s behind a company’s ESG rating, and where the expansive universe of data comes from.

The ESG Data Universe

Drawing on over 1,000 data points, MSCI ESG Research collects data from a variety of sources:

  • Company filings: Proxy reports, sustainability reports, shareholder results, voluntary company ESG disclosures
  • NGOs: Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), UN Sustainable Development Goals
  • Government: U.S. Environmental Protection Agency, European Central Bank, EU Taxonomy
  • Media sources: Major headlines
  • Alternative data: Geo mapping, water scarcity data, flood risk analysis

Across the expansive data frontier, these are just some of the sources that are drawn on. Typically, a significant amount of data goes beyond what a company will voluntarily provide.

ESG Ratings: The Two Fundamental Questions

During this process, there are two key questions that underlie ESG ratings:

  1. Which ESG issues could cause harm to investors?
  2. Which ESG issues may create opportunities, relative to their peers?

To answer these, MSCI uses a combination of technology and ESG analysts.

Calculating Ratings

Next, a company-specific score is (Read more...)

UN Sustainable Development Goals: How Companies Stack Up

by Dorothy Neufeld
This post is by Dorothy Neufeld from Visual Capitalist

Sustainable Development Goals

The UN SDGs: How Companies Stack Up

Environmental, social, and governance (ESG) investing witnessed a breakthrough year in 2020 with the most fund inflows on record.

Importantly, for companies that are judged according to ESG metrics, one way to track their progress is through their alignment to the UN Sustainable Development Goals (SDGs).

Established in 2012, the UN SDGs are a blueprint for creating a more sustainable future by 2030 that have been adopted by 193 countries worldwide.

As investors and stakeholders pay closer attention to sustainability concerns, this graphic from MSCI breaks down how companies stack up according to their alignment to the UN SDGs.

How Were Companies Measured?

To track companies net contribution to the UN SDGs, companies were scored by their positive or negative contribution to each of the 17 goals.

The 17 UN SDGs are designed to achieve three primary objectives by 2030:

  • Protect the planet
  • End poverty
  • Create prosperity and peace for all

Specifically, the framework centers on a discussion paper that was developed in partnership with the OECD in 2018. Company policies, operations, products and services, and practices are analyzed according to reported and publicly available information.

Tracking the Alignment of Companies

Across a universe of 8,550 companies in the MSCI All Country World Index, constituents were measured from strongly aligned to strongly misaligned to the UN SDGs.

Sustainable
Development Goal		Strongly
Aligned		AlignedMisalignedStrongly
Misaligned
1No Poverty089215532
2Zero Hunger24234300
3Good Health (Read more...)