14 September 2020
Schroders' SustainEx tool aims to calculate the financial impact on companies of their social credit or debit for the costs and benefits their actions are incurring but not yet paying for and which are not captured by conventional measures of investment performance. The tool aligns social and environmental impact with investment risk to give a net dollar cost or benefit which is comparable across companies, funds and indices.
Initially applying the SustainEx tool to 8,000 listed companies across the globe, Schroders found that $4.1 trillion of their profit generated would fall by 55% and one-third of them would become loss-making. Since then the tool's reach has expanded to more than 13,000 companies.
Launched in 2018, SustainEx was built on analysis from 400 academic studies, which has since almost doubled to just under 800 as well as an increasing number of metrics, for listed equities and credit securities. Over the last year though it has looked to expand its scope over more asset classes, to cover sovereign bonds.
"It is becoming increasingly important that we quantify and communicate the social and environmental impacts of the assets we manage, which has made SustainEx a key focus across Schroders. Investors no longer see ESG as a nice-to-have. Impact is quickly becoming a key dimension of investment performance and SustainEx has become a core component of our approach in this area," said Andrew Howard, global head of sustainable investment at Schroders and the creator of SustainEx.
Schroders is also keen to emphasise that this is not just distant theoretical costs that companies can ignore, but that advances in regulations are increasingly making them more financially relevant to companies. Things such as carbon pricing, sugar taxes, minimum wages and a raft of other political changes will turn these social costs into financial costs on companies' balance sheets.