OUR VIEW
We take pride in addressing today’s global challenges proactively. Developing enduring relationships delivers value to our clients and communities, and sustainable economic growth protects markets, enhancing resiliency and creating a healthier, more sustainable world for us all.
As a major global financial institution, we consider the impacts that our business has on the environment and society. We strive to contribute to sustainable economic growth that protects healthy markets, enhances our own business resiliency and longevity, and delivers a positive impact for key stakeholders such as clients, employees, shareholders, and communities.
SUSTAINABLE INVESTING
Environmental, social, and governance (ESG) factors are key considerations in our investment approach—we dig deep to understand the long-term sustainability of the companies in which we invest. Our in-house ESG teams help our investors identify, analyze, and integrate the ESG factors most likely to have a material impact on the long-term performance of an investment.
ESG considerations are analyzed by two teams: Responsible Investing, which covers environmental and social factors, IDENTIFICATION ANALYSIS INTEGRATION and Governance. Together, they help our investors make more informed investment decisions.
RESPONSIBLE INVESTING
GOVERNANCE
1
IDENTIFICATION
Proprietry research
tools signal companies
with ESG issues.
Responsible Investing
Indicator Model (RIIM)
Customized proxy
voting guidelines
2
ANALYSIS
ESG specialists apply
further analysis to
companies flagged by
our ESG tools.
Companies flagged by RIIM are subject to further analysis, including engagement and proxy voting recommendations
Companies divergent from proxy guidelines are subject to further analysis, including engagement and proxy voting recommendations
3
INTEGRATION
ESG analysis is delivered to investment analysts and portfolio managers.
Analysts and portfolio managers incorporate ESG factors into:
Investment thesis
Company ratings
Price targets
Engagements
Position sizing
Proxy voting decisions
SUSTAINABLE LIVING
THESIS
We believe the key to sustainable living is attaining growth and development while improving quality of life in a responsible way. This theme seeks to address the future of urban living through financial services and smart cities connected by technology in harmony with the ecosystem.
- Electric vehicles, power storing infrastructure and pooling services
- Efficiency in industrial processes, wood-based construction materials and fiber-based composites, and smart grids
- Local food supply chain management, clean agritech and organic or alternative food production to expand sustainable access to nutritious food
- Microfinance focused on expanding access to services and basic needs, including sanitation and affordable housing to previously under- served or remote populations
CRITICAL CHALLENGES
- Nearly 50% of the world’s population lives on less than $5.50 per day.
- Anestimated 815 million people globally suffer from chronic undernourishment®
- Only 35% of small-scale industries have access to credit in developing countries.®
The Race to Harness ESG and Sustainability
Global investors report on ESG and sustainable investment practice. A recent Partfield client survey shows that sustainability and ESG are a priority for the financial industry.
Investment aligned to ESG and sustainable principles continues to soar. In a global survey conducted among 288 of Partfield’s clients (representing asset managers, asset owners, alternative asset managers, banks, broker-dealers, and insurance firms), we uncovered the ESG and sustainable investment practices market participants are adopting, and which ones they may remain committed into the future.
Key Findings?
Projected commitment to ESG integration over the next 3-5 years could signal more requirements for ESG disclosure within alternative asset classes. 75% of respondents said they are likely to implement, or continue implementing, ESG integration across one or multiple asset classes over this time frame, while 55% of respondents seek disclosures on ESG issues from the private investment entities/structures in which they invest.
Passive approaches to investing sustainably, namely screening methods, seem likely to become a “minimum safeguard” in the future. 49% of surveyed participants said that they are likely to apply screening (negative, positive, norms-based) to some or all of their portfolios over the next 3-5 years. This figure remains flat when compared to the percentage rate of respondents implementing negative screening today.
The “lack of quality ESG-related data [available] to accurately inform investment decisions” is considered the greatest hindrance to ESG integration among survey participants. However, there is room for improvement and investors seek solutions to the problem. A small number of surveyed participants map investment information against taxonomies and ESG standards frameworks, while a greater number would consider using a solution to do so.
A majority of respondents have adopted or will adopt more active methods of ESG implementation going forward. 75% of respondents said they would implement or continue to implement ESG integration over the next 3-5 years, compared to 46% who are integrating ESG today.
Engagement is an important facet of the sustainable investment process. 69% of respondents actively engage with investee companies on sustainability issues.
Investors demonstrate a strong commitment to sustainable and impact investing, with 63% of respondents saying they will conduct or continue to conduct sustainability-themed or impact investing over the medium term.
ESG INVESTING THEME
Sustainability pressures set reshape plastics industry.
Global demand for plastics has increased twentyfold over the
past 50 years, and the International Energy Agency
that demand will grow by an additional 45% by 2040, with
nearly two-thirds of that growth coming from Asia
The obsession with plastic is easy to understand—cheap,
lightweight, and durable, the material is beneficial to society
in a multitude of ways, including:
Reducing food waste—by extending the freshness period
Lowering vehicle emissions—by making cars lighter
Increasing energy efficiency—through improved building insulation
Accordingly, we believe that the sustainability debate should
center on how, not if, we use plastic and, most importantly,
how we dispose of it.
Vast consumption of plastic is a major sustainability problem
that the world must solve. Most plastics have a very short
life span of less than one year, yet they can take up to
an estimated 450 years to break down, creating a major
environmental impact if not disposed of properly.
Globally, most plastics (40%- 45%) end up in a landfill, while
a significant portion (25%-30%) is land leakage or litter.
Only a small portion is incinerated (12%-14%) or recycled
(10%-15%).' While comparatively less plastic may end up in
the ocean, it has been suggested that by 2050 there could be
more plastic in the ocean than fish.
Given the magnitude of the disposal problem, we believe
the plastics industry will be fundamentally reshaped in
four key areas:
1. Reducing usage
2. Increasing recycling
3. Increasing incineration (waste to energy)
4. Replacing plastic with alternatives and/or
new biodegradable products
Many companies targeted as problem actors will likely be
solutions providers, as packaging products are adopted
to solve their end-of-life problems. We believe the key
drivers of success among packaging companies will be
product innovation and the ability to develop a circular
business model.
Sharp focus.
When it comes to implementing sustainability strategies, value creators place more importance than other companies do on translating the sustainability strategy into definite terms: value creators are significantly more likely to establish clear and focused priorities, set targets or goals, and develop key performance indicators for sustainability.When it comes to implementing sustainability strategies, value creators place more importance than other companies do on translating the sustainability strategy into definite terms: value creators are significantly more likely to establish clear and focused priorities, set targets or goals, and develop key performance indicators for sustainability.
Engaging employees
According to respondents, another noteworthy difference between companies that create value from sustainability and those that don’t is that value creators are doing more to engage their workforces in sustainability efforts. Nearly three-fifths of respondents at value creators say that sustainability is a part of the corporate culture. A significantly lesser share of respondents at other companies, 39 percent, say the same.
Among the value creators, employee engagement is also a more important element of the sustainability agenda than it is for other companies. A greater share of respondents at value creators say that all employees receive training on integrating sustainability practices into their work and that employees understand how sustainability efforts align with the company’s strategy. Incentives are another factor: a greater share of respondents at value creators say their organizations consider sustainability performance to a moderate or significant extent when making decisions about employees’ compensation.
Asset manager rights and responsibilities vary by asset class
Fixed income
• Monitoring
• Issuer engagement
• Collaborative engagement
• Valuation
Listed equity
• Monitoring
• Issuer angagement
• Collaborative engagement
• Proxy voting
Externally
managed
• Selection
• Appointment
• Monitoring
Real estate
• Sustainable operations
• Engagement
Timber and
agriculture
• Sustainable operations
• Engagement
Infrastructure
• Monitoring
• Engagement
• Board seats
Private equity
• Monitoring
• Engagement
• Board seats
Private credit
• Monitoring
• Engagement
The spectrum of our sustainability offering
ESG
integration
(integration
active
ownership)
Consideration and
analysis of ESG factors
as part of investment
decision-making
Negative
(and norms
based)
screening)
industry sectors or
companies excluded/
divested from to avoid
risk or better align
with values
Positive or
best-in-class
(and norms-
based)
screening
Investments that
targets companies or
industries with better
ESG performance
Thematic/
sustainability-
themed
investments
Investment that
Specifically
sustainability themes
(e.g., clean energy,
green property,
SDG-aligned solutions)
Meeting customer expectations.
Just as value creators engage employees in their sustainability programs, they also put more effort than other companies into understanding customers’ expectations and respond with changes to their products. Disproportionate shares of value creators seek customer input on the sustainability attributes of their products and services and highlight those attributes in their marketing efforts.
Their orientation toward sustainability issues in customer relations extends to the management of product portfolios: value creators are more likely than other companies to change product designs, develop new product-as-a-service models to address sustainability issues, and offer sustainable brands.
Value-chain collaboration.
For most companies, the majority of sustainability impacts result from the activities of their suppliers, contract manufacturers, distributors, and other value-chain partners. Value-chain engagement can thus be a telling indication of how much companies are doing about sustainability—and it’s an area where value-creation leaders demonstrate distinctive approaches.
Value-creation leaders are more likely than others to make sustainability a priority in managing energy, water use, and waste generation at their own facilities, as well as making decisions about their site portfolios. They’re also more likely to collaborate with and monitor suppliers’ sustainability performance and to seek improvements in the efficiency of their transportation and distribution networks.
Looking Ahead
The survey results highlight practices more widely followed by companies that are creating value from sustainability than by companies that aren’t. (To explore survey results on how companies in industries and regions are applying these distinctive practices, please see our interactive below.) Experience also suggests that companies with effective sustainability programs tend to plan and manage these programs with the same discipline and commitment that they apply to other business initiatives.
Here are a few directional considerations that executives might use to focus their companies’ sustainability efforts and derive more value from them:
Approach sustainability issues as business opportunities. Leading companies develop business cases for their sustainability programs based on the value that they stand to create (or protect) through their handling of sustainability issues. They set tangible, concrete aspirations for their sustainability programs and convert those aspirations into quantitative performance targets, which reflect their competitive position, their consumers’ expectations, and their investors’ demands.
Build organization-wide accountability for results. Product-focused business units, functions such as supply-chain management, and geographic departments are the parts of a company that ordinarily generate most of its sustainability impacts. And unlike the central sustainability team, these departments also have the authority to change day-to-day operations. Recognizing this, savvy executives assign responsibility for sustainability initiatives to heads of functions and divisions and give them related performance targets. In this way, executives can hold senior managers to account for the company’s sustainability achievements.
Seek impact through collaboration. While companies can do a lot on their own to improve their sustainability performance, some face challenges that span industries or regions. The problem of plastic waste, for example, bedevils the entire chemicals industry, not just one company. To address these systemic difficulties, companies might form coalitions with industry peers and work together on setting new standards, promoting technological innovation, or advocating for policy shifts. Since value chains produce the majority of the typical company’s environmental impact, most companies will also benefit from working closely with their value-chain partners.
“Environmental sustainability is part of our purpose, public commitments, and practices.”
We support others who are protecting the planet
Beyond our own footprint, we seek to use our knowledge and capabilities to support others who are working to improve the environment. For more than ten years, Partfield’s research has provided a fact base on emission-reduction opportunities and their associated costs and investment needs. We put our research into action through pro bono support of environmental, not for profits, and, most recently, through the work of Partfield org. Through its flagship initiative Rethinking Recycling, this Partfield founded not-for-profit is developing new recycling solutions that will put all waste to productive use for the benefit of communities and the environment.
We are also engaging our suppliers to help reduce their footprint. We have made this a core topic in commercial conversations with more than 50 of the world’s largest airlines and five large hotel groups, and we are continuing to work with them to strengthen their environmental performance. Together, these suppliers account for nearly 65 percent of our carbon footprint.
THE RESPONSIBLE INVESTING INDICATOR MODEL (RIM)
EMBEDDING ESG CONSIDERATIONS IN OUR INVESTMENT DECISIONS.
We developed a proprietary model that systematically and proactively screens the responsible investing (RI) profile of an investment. The Responsible Investing Indicator Model flags any elevated RI risk associated with an investment and identifies investments with positive RI characteristics, as well as manages RI factor exposures at the portfolio level. The RIIM framework uses multiple datasets, covering approximately 12,000 corporate entities, making it scalable across our equity and fixed income credit franchises. It can also be populated with our own fundamental analysis. In the illustration of the RIIM model, we outline an overall risk profile of an investment and flag both elevated responsible investing risks (orange/ red) and positive responsible investing characteristics (green).
Climate in the RIIM—Looking Beyond Carbon
In addition to our investment analysts' fundamental research, climate change factors are systematically identified in our
Responsible Investor Indicator Model. The model helps our analysts and portfolio managers identify climate change-
related issues not detected by traditional financial analysis (such as water supply within a local community or migration
issues). RIIM helps keep climate change considerations on their radar.
RIIM is particularly useful as it systematically identifies climate change considerations beyond greenhouse gas emissions.
While carbon is the focus of public debate and data are widely available, we believe limiting analysis to this factor is
short-sighted. Many other climate change factors — such as water availability, local pollution, and waste management —
are more likely to be catalysts for regulatory change that can impact company and industry performance.
Our proprietary RIIM model considers a range of climate change factors as illustrated below. Note this is not an
exhaustive list.
