A custom-built approach to ESG
ISS ESG puts a premium on its clients’ ability to customise the ESG data and analytics they can access, its CEO Marija Kramer tells Environmental Finance
Environmental Finance: How has ESG evolved within ISS, and how has your range of solutions developed?
Marija Kramer: Ever since ISS was founded in 1985, ESG has been an integral part of our institutional product offering. It has evolved with the market, from the early days of socially responsible and values-based investing to encompass what we have today. After we separated from MSCI (ISS’s previous owner, from 2010-2014), it retained much of ISS’s ESG capabilities, while ISS retained the governance side of the business. That provided the opportunity to restart our ESG journey and reassess market needs. We undertook a formal consultation with many of our 1,200-plus institutional investor clients to identify what unmet needs they faced.
The result has been a strategy of organic growth and the acquisition of six ESG businesses, to the point that we have over 400 dedicated ESG professionals within ISS providing a ‘full service’ ESG offering. ISS ESG offers ratings and rankings, screening, climate data and analytics, index and impact solutions, as well support for engagement and proxy voting services. Unlike many of our competitors, we only offer responsible investment products.
I think our USP for institutional investors is also allowing them to marry their responsible investment philosophy with the ability to vote their proxies in line with that philosophy.
EF: What are the key misconceptions that potential clients have about the ESG data you produce?
MK: The first relates to the timeliness of data. Given our roots in corporate governance, many investors assume our focus is on the AGM. But these days, investors are engaging throughout the year, and we are therefore constantly monitoring corporate performance and risk.
The second is the misconception that our data is entirely based on company disclosure. While a lot of it is, we carry out different types of data processing and enriching, for example using machine learning and natural language processing, looking at news media sources and undertaking sentiment analysis. In addition, where data is missing or incomplete, we leverage complex modeling that we've built over the years to either forecast or estimate missing data: climate is a great example of that.
EF: To what extent is customisation important to your clients?
MK: Customisation is critical to our client base and to our service offering. We deliver our content through various channels, whether third-party such as Factset or Bloomberg, bespoke data feeds and formats, and in API delivery as well. Secondly, we’ve invested significant resources into building an online custom rating tool for investors. It enables an investor to assess holistic ESG and financial data sets, allowing them to build a score or rating from the ground up, in line with their own investment philosophy; it’s the only tool of its kind in the market.
EF: How can ISS ESG support SDG investment strategies? Do you think the Covid-19 pandemic will affect investor implementation?
MK: To complement our existing SDG Solutions Assessment, we’ve recently launched an SDG Impact Rating. This offers investors an innovative, holistic measurement of a company’s positive or negative impacts on all 17 of the SDGs. It looks at 100 data factors, with impact measured against each of the goals, and at an aggregate level, with companies rated from negative 10 to positive 10.
On the Covid front, the importance of specific sustainable investment themes that are at the heart of the SDGs will be a greater focus, particularly on SDG 3, regarding good health and well-being. Investors are trying to identify companies that are contributing positively to addressing the pandemic. My expectation is that demand is only going to grow for data that can support these investments.
EF: Focusing specifically on ISS ESG’s climate-related capabilities, what are your unique strengths?
MK: Our strength in general, and with climate in particular, is in enabling our clients with superior coverage and depth to identify, measure and then act upon risk and impact. One of our ESG acquisitions was South Pole Group’s Carbon Neutral Investments entity – one of the longest-standing climate teams in the market – which comprises ISS ESG’s dedicated climate team.
In addition to the quality and quantity of the data and analytics we offer, our clients really value the accessibility of the content. We’ve built online tools through our DataDesk application that automate climate impact reporting, allowing investors to run carbon footprints and assess the physical and transition risk of over 20,000 entities. The platform can then be complemented with climate-linked analysis on SDGs and other ESG offerings, whether on governance or sustainability.
We have also launched an integrated view of climate into our proxy research for our institutional clients, through the provision of a climate-awareness scorecard that helps investors evaluate climate risk and preparedness. If they have concerns and want to voice their opinions through the shareholder vote, they are easily able to do that through our proxy voting service.