Insight Investment, the London-based asset management company owned by BNY Mellon, has introduced a research rating system to assess issuers against a set of proprietary ESG risk metrics.
More than 6,500 issuers covering 850,000 respective subsidiaries have been assigned an Insight ESG rating since its introduction late last year. It has been applied to c.99% of companies in euro-denominated investment grade indices, c.95% of those in global investment grade indices, and all companies in Insight's European-focused ESG portfolios.
The rating is a quantitative risk-analysis tool which provides a fresh feed of data into Insight's credit research hub, alongside non-ESG inputs. It aggregates and assesses external data against a set of 29 ESG risks, creating a bank of information for Insight's team of 47 credit analysts to review while forming their qualitative evaluations.
Our credit analysts find many holes in externally-available information and poor agreement among data providers about what constitutes an ESG risk."
Analysts' decisions are also based on direct engagement with companies, a critical part of Insight's approach to ESG risk analysis. Eighty-two percent of Insight's meetings with sovereign and corporate debt issuers covered ESG topics in 2019, up from 54% the previous year.
Joshua Kendall, senior ESG analyst at Insight Investment, said: "Our credit analysts find many holes in externally-available information and poor agreement among data providers about what constitutes an ESG risk. Also, for many smaller issuers, particularly emerging market or high-yield companies, the availability of relevant non-financial data lags information from larger issuers.
"We've responded by creating a series of ESG risk analysis tools to enhance our delivery of the research-led strategies our clients require. This rating is the latest innovation in that series. The earlier climate and sovereign risk models are also being updated."
"The rating is also effective in deepening our analysis of the nascent but fast-developing market for impact bonds, where issuance recently passed the USD$1trn mark. This market is ripe with opportunities, yet large parts remain obscured by low levels of disclosure, creating challenges around comparability and concerns of ‘impact washing'. Of the 126 new impact bonds analysed in 2019, only 33 satisfied our expectations."
Kendall added: "Insight seeks to use its derivatives risk management expertise and influence in bond markets to give a voice to its clients and the millions of investors they represent. We regularly engage with policymakers and regulators on reforms that impact our pension fund clients."