March 23, 2017

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Special Report – Sustainability Finance: The Unstoppable Train

The final part of this week’s special three part Sustainability Finance Report by Reynard Loki.

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INVESTOR DEMAND FUELS BLOOMBERG’S ESG INTEGRATION

At Bloomberg, the demand for ESG is clear: Hits on ESG data have doubled each year on average. Unique ESG users—there are currently about 10,000—are growing at an average annual rate of about 40 percent and includes both mainstream and specialist professionals.

"Our users cut across finance, business, services, academia and other areas with the buy-side accounting for the majority of ESG users," said Suki.

"The inclusion of ESG information on platforms such as Bloomberg is yet another positive indication of the mainstreaming of sustainability in capital markets," said Michael Jantzi, CEO of Sustainalytics, in a press release in May announcing the availability of the company's ESG research data to the more than 320,000 Bloomberg Professional service subscribers. "Having corporate ESG performance data housed alongside more traditional financial information allows investors to more easily integrate ESG factors into their fundamental analysis."{4}

"Our fixed income integration effort comes on the heels of about five years of building our ESG databases, integrating that data into mainstream financial and portfolio analysis functions and building models in Excel specifically for ESG analysis," said Suki.

 

EXPANDING UNIVERSE: BLOOMBERG’S ESG COVERAGE

The current coverage of ESG data for companies in the main Bloomberg corporate bond indices—which includes company-reported ESG data, but not third-party information—is substantial, particularly among high-grade reporters that align more directly with larger cap public equity issuers. For USD high-grade, where Bloomberg indexes some 5,000 bond issues, ESG coverage is about 80 percent.

The coverage is analogous to the equity side, and as one would expect, the quantum of reporting declines as you move down the credit curve. In the euro-denominated high yield universe, for example, where Bloomberg indexes around 450 issues, coverage is between 40 and 50 percent.

"One of the things we're going to be doing in 2015 is to increase our coverage of private debt issuers," Suki noted, adding that "one of the factors that complicates ESG information in fixed income is debt issuance by subsidiaries, special purpose vehicles, related entities and other organizations that have to be mapped back to the ESG reporter. So we're in the process of simplifying that process."

Bloomberg is also currently reviewing the mapping of thousands of tickers to make sure that they link directly to the most relevant ESG data to the risk of that issuer.

"One of the key objectives here is to ensure that you as a user will always get the ESG data that is most closely related to the risk of that issuer automatically," she said. "Our role in this is really to ensure that there's sufficient transparency in the market so that investors can make their own decisions that align best with their investment policies."

 

ESG GO: BONDING WITH BLOOMBERG TERMINAL

Terminal users can access a landing page at ESG<GO> to get an overview of Bloomberg's ESG product offerings, including ESG news highlights, white papers, upcoming events, data coverage, Terminal function maps and links to various analytical tools. For example, on the Bloomberg Intelligence platform at BI<GO>, users can get comp sheets for each sector illustrating that sector's most material ESG issues and access additional sector coverage, including higher frequency news and data-driven short-form ESG research insights featuring third-party data fields from Sustainalytics and other ESG research firms.

In addition, Bloomberg's ESG scorecard—originally developed for the equity side—now includes ranks and scores for bond portfolios. Suki added that they are very close to launching an updated scorecard that will not only draw from a more advanced ticker mapping to maximize ESG data points, but will also rank and score ESG exposure by unique credit (as opposed to individual bonds) to help investors make comparisons against a benchmark portfolio.

In the fixed income search, Bloomberg has rolled out some pilot ESG data fields so that users can now directly screen bond issuers according to such categories as emissions, energy intensity, water intensity, accidents, fatalities, board independence and gender representation.

Moreover, terminal users can now use short-cut searches, so that typing “@GREEN” in the search bar, for example, returns a listing of the self-labelled green bonds universe, which can be expanded to include bond issuers that have received a high new energy exposure rating from Bloomberg New Energy Finance (BNEF). Users can also access the green bonds Terminal guide located at the BNEF homepage at BNEF<GO>.

To help users identify and price a broad group of sustainability-oriented fixed income opportunities, Bloomberg has also made broader universes discoverable (type in BBG<F12>), with public portfolios that expose self-labeled green bonds, BNEF-labeled green bonds, municipal bonds, project bonds and agencies that BNEF has identified as being issued with use-of-proceeds targeting clean energy, energy efficiency and other new energy opportunities.

Users can also access a specific news feed on the Bloomberg Terminal that draws stories on a specific sector by typing in NISH ENGAGE. The view can be customized to pick up not just Bloomberg reports, but also stories from more than 1,000 news sources in over 30 languages and content from around 90,000 web and social media sources.

To help emerging markets investors evaluate sovereign issuers, Bloomberg has created an ESG Strategic Country Risk Tool that scores countries and credits, taking into account longer term ESG metrics.

"You can also use this model for understanding long-term opportunities, country risk and comparable performance on issues like education, energy use and dependency, freedom of the press, gender integration and other longer term economic, environmental and human development factors," said Suki.

 

ESG AND FIXED INCOME: OLDER AND WISER

Considering the aging populations in the U.S. and Europe, the fixed income market will likely grow as increasing numbers of retirees shift their portfolios from stocks to bonds.

And though the exact definitions of the ESG-applied fixed income universe are still being hammered out, what is clear is that more SRI investors are moving beyond mere "negative screening"—such as divesting from "sin stocks" like tobacco, or avoiding companies that are harming the environment or neglectful of human rights and fair labor practices—to seeking specific positive impacts in addition to financial returns.

The fixed income universe may not be as sexy as the volatile world of equity, but these lower risk securities—and the tools and processes that help identify and apply ESG factors to analyzing them—will definitely play a big role in the ongoing development of the entire ESG investment landscape.

 

NOTES 

4. Sustainalytics ESG Research Now Available on Bloomberg. Sustainalytics.com. May 27, 2014. http://www.sustainalytics.com/sustainalytics-esg-research-now-available-bloomberg. Accessed November 19, 2014.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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