[ M A R K E T
to incorporate ESG factors in the invest-
ment decision-making process.
In May 2018, meanwhile the European
Commission issued a series of proposed
regulations aimed at repositioning ESG
considerations at the heart of the financial
system. “Article 3 of the document aims
to establish the basis for development of
a standard EU taxonomy for ESG,” says
Day. “A defined taxonomy would assist
investors identify which investments and
to what degree can be considered envi-
ronmentally sustainable.”
While work on standardisation of
ESG factors is ongoing, several market
data providers have introduced product
offerings to cater to the growing interest
in this asset segment from institutional
investors. Bryan Lenker, VP and director,
content & technology solutions, at Fact-
Set, a global provider of financial informa-
tion and analytic software for investment
professionals, has noticed an increase in
demand for access to ESG-related data.
“Since I joined the firm 14 years ago, it’s
been one of the most requested datasets
by our client base. We’ve seen interest
across institutions,” he says.
Lenker works with Rich Newman, SVP
and global head of content & technology
solutions at FactSet, who observes that,
“ESG data is in great demand among
investment managers, who rely on a wide
range of information to help quantify the
intangible factors that drive a company’s
value and performance.”
Recently, says Lenker, “There’s been a
need for quants to have that data integrat-
ed and connected from a range of ESG
data providers, which has transitioned
into more of a technical access require-
ment.”
R E V I E W
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E S G ]
Some of the newer alternative data providers are making a
splash in ESG by incorporating news and external sources of
information, says Lenker. “These new entrants can provide dis-
tinct value – and sometimes alpha,” he comments.
ESG investors are increasingly able to demonstrate a relation-
ship between ESG metrics and outperformance, says Day. “July
“There are current inconsistencies in the criteria
used to identify economic activities that qualify as
environmentally sustainable, making comparison
difficult.
CHARLIE DAY, GLOBAL HEAD OF EQUITY PRIME BROKERAGE, SOCIETE GENERALE
2017 YTD performance of the “Eurekahedge ESG Fund Index”
is 8.36%; performance over the same period of the “MSCI ACWI
ESG LEADERS Index” is 12.61%, compared to the average global
hedge fund performance of 4.34%, according to Eurekahedge,”
he points out. “Unsurprisingly respondents to the AIMA CAIS
survey reported a roughly 50% increase in demand for responsi-
ble investment from either current or prospective investors.”
The growing interest in ESG provides both an opportunity and
a challenge for custodians. “As we work to support our clients’
evolving custody and asset servicing needs, we can assist with
our clients’ monitoring of ESG factors in their investments,” says
CIBC Mellon’s Garneau.
Mobius, however, is reticent to suggest that custodians can add
significant value in this regard. “Custodians can certainly help in
monitoring ESG scores of companies in their custodial book,” he
says, “but, in terms of analytics, they need to depend on the in-
dependent service providers, who specialise in ESG analytics.”
Custodians add value
Hedge Funds tend to take in several ESG
data sets, but how they are implemented
in their models is not always clear. “Our
hedge funds tend to want more unstruc-
tured, raw data,” says Lenker. “Non-hedge
fund institutions are looking for value out
of the data set itself.”
Data can either be used to construct
individual portfolios or ETFs at the more
active end of the scale or simply as a
screening tool. “You might, for example,
just want to set a broad exclusionary rule
to remove certain types of stocks from
your investable universe,” he says.
The Hedge Fund Annual 2018
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