RobecoSAM continuously works to enhance the integration of environmental, social and governance (ESG) factors into investment decisions to help investors reap the benefits of Sustainability Investing. RobecoSAM’s Quantitative Research team developed an innovative “Smart ESG” scoring methodology.
Conventional ESG scoring methodologies do not fit into traditional factor models and typically result in size or regional biases. Large cap companies tend to have better corporate sustainability processes and disclosures than smaller companies, and European companies tend to be more transparent. As a result, these companies tend to receive higher ESG scores. In addition, in contrast to mainstream factors such as value or momentum, traditional ESG scores are broad, often aggregating hundreds of individual indicators into a single score, diluting financially material information. To address these challenges, we have built upon our existing methodology to develop unbiased and financially material ESG factor scores that are more relevant for investors.
Our Smart ESG methodology leverages the wealth of sustainability data in our proprietary sustainability database to identify the most financially material sustainability criteria in order to develop an ESG factor that can be combined with other common financial factors
Simply put, our Smart ESG methodology uses quantitative analysis to “find the alpha” in sustainability.
Having enhanced the predictive and explanatory power of our sustainability data, we have integrated Smart ESG into the S&P ESG Factor Weighted family of sustainability indices, and are now working on integrating Smart ESG across an even wider range of solutions, both active and passive.
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