Bigger, faster, more. Whether due to policy, technological or climatic changes, companies face an onslaught of challenges that are happening sooner and more dramatically than many could have anticipated. Investors in turn are looking for ways to position their portfolios to best navigate the uncertainty. In 2018, these are the major trends that we think will shape how investors approach the risks and opportunities on the horizon. In 2018, investors will…
1 SIFTING FOR MANAGEMENT QUALITY IN EMERGING MARKETS
…use ESG signals to help navigate the evolving size and shape of the Emerging Markets investment universe. More than 15% of Emerging Markets domiciled constituents of the MSCI ACWI Index have ESG Ratings that eclipse their country’s ESG Sovereign Ratings, making them country outperformers worth watching.
2 FIRST STEPS IN SCENARIO TESTING CLIMATE CHANGE
…expand their view of portfolio climate risk from company carbon footprint to macro exposures across asset classes. We found that at least 40% of each major asset class is exposed to countries at high risk to irreparable physical damage under a high warming scenario.
3 ACCELERATION OF ESG INTO FIXED INCOME INVESTING
…be catalyzed to adopt ESG factors in fixed income investments, as demand from leading asset owners to align their ESG frameworks across asset classes coincides with interest in how ESG factors can add value to credit analysis. Recent research on ESG and equity performance suggests that a company’s ESG Rating could signal a form of ‘unmatured’ event risk.
4 LOOKING BEYOND SUSTAINABILITY DISCLOSURE
…look to alternative data sources to balance the growing volume of corporate sustainability disclosure. In our own ESG Ratings, 65% of a company’s rating on average is driven by data sources beyond voluntary disclosure.
5 THE YEAR OF THE HUMAN
…increasingly seek opportunities to invest in talent quality, as Artificial Intelligence (AI) redefines work tasks to require higher skilled human input. While good workforce data is hard to come by, we find evidence that companies with stronger human capital practices had better productivity growth than industry peers.
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