About our ESG methodology
Every asset manager talks about their ESG methodology, but here we would like to explain why you should care about ours.
Coming from a family business which started in 1841 means that by the time we were founded in 1929, we already had family values, culture, and preferences to guide what sort of asset management company we were going to be. Essentially, there are three values at the heart of our business that guide the way we invest, which includes how we look at ESG. Those values are:
- Human dignity
- Good corporate citizenship
We use these values to guide how we view ESG from the perspective of risk opportunities in the portfolio and impact on the world. These broad themes guide our expectations of the underlying funds we invest in, aligning with international norms and conventions.
What is Anthos’ ESG methodology?
In order to set expectations of the underlying managers and funds, we use a proprietary tool called our “ESG and IMP scorecard” or sometimes simply “RI scorecard.” This scorecard is a tool that helps us to assess the sustainability credentials of managers and funds during due diligence and post-investment for engagement and monitoring.
The ESG portion of the assessment is based on the guidance of the Principles for Responsible Investment (PRI), which Anthos has been a signatory of since 2019, and GRESB for real estate. PRI is a United Nations-supported initiative that promotes responsible investment practices.
The assessment includes:
- Purpose, culture and governance
- ESG integration
- Stewardship and positive investment
For a more detailed explanation of this assessment, read our Responsible Investment Policy (p.16).
Each part of the assessment results in a qualitative and numerical “score,” which gives an overall score for each manager or fund. Depending on the score, a fund can be a:
Funds and managers with scores above a certain threshold are designated leaders, whereas those below are either professionals, novices, or laggards.
What are the advantages of this approach?
The “leader/laggard” methodology provides investors like us with a way to evaluate and compare the ESG policies and intentions of managers and funds across all asset classes we invest in. By highlighting leaders from laggards, we hope to drive improvements in ESG performance across our portfolios, increase transparency, and address areas of weakness. In that way, this methodology and the scorecards that express it are useful tools to guide our conversations with managers about ESG considerations.
What’s more, by aggregating the assessments, we can get a holistic view of where we stand at a total portfolio level in terms of all the assets we manage. Having now tracked this for three years, we are able to see areas we are doing well and areas for improvement.
“It’s a great tool to harmonise our RI assessment of our managers and at the same time it provides structure in our ESG engagements with our managers.” – Anthos Fixed Income Team
What are the limitations?
One of the main limitations with our ESG methodology is that it assesses RI policies and intentions, but not outcomes. Sustainability outcomes – such as avoided emissions, or increases in biodiversity – are critical for a more complete assessment of ESG across our investments.
Another challenge is using a single assessment across six different asset classes across public and private markets. A listed equity fund and manager will have far more resources than a small venture capital fund when it comes to collecting and analysing their ESG data. Since we have been using this assessment for more than three years now, we are seeing our investment teams grappling with different and idiosyncratic challenges depending on their asset class. We try to synthesise and make sense of this at the holistic level and discuss this with our clients and stakeholders, but there is a long way to go before we have clarity on the perfect way to do things.
That’s why we strive to continuously learn, develop, and improve our ESG methodology in line with global standards and guidance like the PRI or GRESB (for real estate).
“The challenge is that when managers have a less structured and documented approach, they are often not (fully) credited for the work they do in reality. We do identify these gaps and inform our managers on how their efforts could be better reflected to the outside.” – Anthos Private Equity Team
How do we expect to evolve this approach over time?
Given the limitations, we want to embed outcomes into our assessment in the near future. We are also focused on digitising our assessment so that it does not become burdensome for our teams or underlying managers. Through digitising this assessment, we also hope to collect more granular data from our managers so we can work towards a more complete ESG assessment; one that combines sustainability outcomes as well as intentions.