Stockholm (NordSIP) – At this year’s Environmental Finance Impact Awards, on September 14, Schroders was ranked as the top asset manager in impact measurement/impact reporting for SustainEx. The tool seeks to explain what the effect would be for companies if they were given a bill that forced them to internalise social and environmental externalities in their costs considerations.
We caught up with Senait Asgede (Pictured), Senior Client Director at Schroders to discuss this recent success, recent developments within SustainEx, its contributions to risk management during the pandemic and the upcoming products in Schroders’ pipeline.
Recent Evolution of SustainEx
Launched in 2018, SustainEx is now based on just under 800 academic studies, which form the basis of the costs assigned to each activity. Its coverage has now expanded to almost 13,000 companies and will soon expand its scope over other asset classes such as sovereign bonds.
“We are happy for the recognition that this award gives SustainEx,” Asgede says. “It also confirms that clients are now asking different questions when it comes to their investments and how their assets contribute to the bigger picture, our society and planet.”
“The tool is evolving as we accumulate more data and research, company engagement and understanding of how developing regulation will impact companies,” Asgede adds. “We can describe the enhancements to SustainEx via three broad categories: broader scope (incorporating new impacts and expanding to sovereigns), deeper analysis (incorporating new academic studies and data points to the tool) and robust application (fund manager & analyst onboarding, reporting etc).”
Sovereign Impact Analysis
Regarding SustainEx’s increasing scope, Asgede made it clear that it was a natural step for the tool to evolve towards covering the public sector and country risk in general. “In the same way that companies generate positive and negative impacts on societies, countries and their governments contribute to global problems and goods. We can quantify the extent of those global costs and benefits, and countries’ responsibilities for them, to measure sovereign impacts.”
“Climate change is a global threat, but countries’ contributions to it differ significantly,” Asgede says. “By using assumptions for the social costs of carbon which are consistent across asset classes, we estimate the costs of each companies footprints, as well as the benefits of their afforestation programs and the global value of their support for clean energy research.”
However, SustainEx’s insights are not limited to climate change. “Terrorism is a global threat, to which some fragile states contribute more significantly and the global costs attributable to those countries can be estimated based on estimates of the global costs and national data on terrorism activity. We have identified several new metrics specific to sovereign impact analysis, as well as applying many existing corporate metrics to sovereigns.”
Going forward, the tool will continue to expand to other asset classes, according to Asgede. “Beyond sovereign bonds, we have also started to examine ways to extend the same principles to other asset classes including real estate and private equity,” she says. “Ultimately, we intend to develop consistent measures of impact across asset classes and portfolios.”
SustainEx and COVID-19
Given the ability of a tool such as this to identify potential hidden cost not captured in a company’s financial statement, we were interested in hearing about how SustainEx might have helped Schroders navigate the Coronavirus pandemic.
“I would say it has helped us to navigate and understand risks which have become even more critical during the crisis,” Asgede says. “COVID-19 has focused the attention of society, policymakers and investors on issues that have been with us for some time, but which have not been priorities, such as inequality and climate change and the policies needed to address them. However, these questions are no longer seen as academic or theoretical. They are now primary concerns. They have gained in social and political prominence.”
“Even before COVID-19, those forward-looking estimates were already included in our risk dashboard and monitoring discussions, helping our investors to make more informed decisions.”
ThemEx In the Pipeline
According to Asgede, SustainEx exists in an ecosystem of analytical tools that Schroders can deploy to inform and advise its clients. “Beyond our Climate Dash Board, Carbon VaR and Physical Risk tools, we have started looking into measuring the impact of each of our investments and measuring companies’ contribution to the SDGs.”
“ThemEx is the upcoming tool we are developing for this purpose. It helps us understand intentionality and to articulate what our clients’ contribution is to solving the bigger picture challenges that society is facing. ThemEX will help us to quantify and measure SDGs.”
According to Asgede, ThemEx is relevant for both Nordic institutional investors, but also for intermediaries who are starting to need to do more ESG matching with end investors. “It is about investing with the deliberate intention of having a beneficial environmental or social impact,” Asgede concludes.
Image courtesy of Schroders