Intech’s COVID-19 Response Update Read Now

Please Choose Your Country

Welcome. This website is intended solely for the use of institutional investors, consultants and other professionally recognized financial intermediaries in specific countries. Intech Investment Management LLC (“Intech”), is an investment adviser registered with the United States Securities & Exchange Commission. Intech is not permitted to offer products and services in all countries. It is the responsibility of prospective investors to inform themselves of and to observe all applicable laws and regulations of any relevant jurisdictions, including the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares or securities, and any foreign exchange restrictions that may be relevant thereto. The products and services referred to in this website are not offered to any person or entity in any jurisdiction where the advertisement, offer or sale of such products and services is restricted or prohibited by law or regulation or where we would be subject to any registration or licensing requirement not currently held by Intech or our affiliates. If Intech does not offer a website for your country, please visit www.janushenderson.com.

For U.S. and Canadian Institutional Investors Only

Not your country? Please choose your country here.

Information contained in this area of the Website is published solely for general informative purposes and intended only for United States and Canadian institutional investors, consultants, financial advisers, and other intermediaries who are who are knowledgeable and experienced in the financial services market and in investment products of this nature. If you are a retail, individual investor or non-ultra-high net worth individual then please leave this website immediately. The information is not authorized for use in a jurisdiction where distribution is not authorized and is not intended for distribution to retail clients, the general public or retail investors. If you choose to access this Website from locations outside of the United States or Canada, you do so at your own initiative and risk, and are responsible for compliance with all applicable laws.

U.S. Institutional Investors: By accessing this site you confirm that you are an U.S. Institutional Investor, you agree not to forward or make the contents of this site available to any person who is not an U.S. Institutional Investor, and you agree to be subject to intechinvestments.com terms of use.

Canadian Institutional Investors: By accessing this site you confirm that you are a “permitted client” as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations of the Canadian Securities Administrators, you agree not to forward or make the contents of this site available to any person who is not a “permitted client”, and you agree to be subject to intechinvestments.com terms of use. The information on this Website is for informational purposes only and does not constitute (i) an offer for products or services or (ii) the provision of investment advice of any kind, tailored or otherwise. The information on this Website should also not be construed as an offer to sell or a solicitation of an offer to buy to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. Intech Investment Management LLC (“Intech”) does not have any funds that offer securities under a simplified prospectus for general offer or sale within Canada. No securities regulatory authority in Canada has reviewed or in any way passed upon this website or the merits of any investment available, and any representation to the contrary is an offense. Intech is registered with the United States Securities & Exchange Commission under the Investment Advisers Act of 1940. Intech is a subsidiary of Janus Henderson Group plc, and is affiliated with its subsidiaries and affiliates.

Decline - Redirect me to janushenderson.com

ESG integration comes with a significant and evolving challenge: ESG data. No matter the investment style, proper implementation requires reliable and current data to both construct ESG portfolios and confirm they’ve succeeded in meeting investors' ESG objectives. For quantitative investment methodologies, ESG data must also be comprehensive and have an extensive history.

In this blog, we’ll cover some of the requirements for useful ESG data, and how current ESG data sources are lacking.

Reliable

At the simplest level, data reliability means that the data sources must be trustworthy, i.e., they have low frequency of errors and high internal consistency (e.g., changes in pillar scores are reflected in overall composite ESG scores). Ideally, the metrics should also be clearly defined such that the figures can be independently verified, at least in principle. However, at both the simplest and more demanding levels, ESG data present severe challenges.

For one thing, as investors’ interest in ESG is booming, new databases are regularly introduced, while older databases continue to evolve. This often negatively impacts the consistency of the data.

Also, unlike standard company fundamentals which have been reported and analyzed for many decades, there’s still little consensus on how to define or quantify ESG data. Even within the dataset of any single vendor, there are often inconsistencies due to changes in the raw-data sources, calibration methodologies, or ad hoc manual adjustments.

Finally, ESG data are unavoidably subjective to a large degree: all three pillars (Environmental, Social, and Governance) reflect implicit value systems, and their quantification depends on each provider’s judgement regarding which issues to consider, how to calibrate the rating scale, or how to distill the underlying ratings to a small number of figures. This opens the door to further inconsistencies at each step of this manual process.

Current

For non-ESG types of data, the time interval between news or company announcements and when they are accurately reflected by data vendors has been generally compressed to a matter of days or hours. This is not the case for ESG data, partly because of the amount of manual labor involved in procuring the data, cleaning them up, or curating them in other ways; also because the impact of news can be hard to ascertain at the time it becomes public knowledge. This results in analysts updating ESG data on a weekly or monthly basis, at best. And even at this low frequency, it is often the case that analysts revisit only a fraction of the companies in the database at each update, so that many months (sometimes more than a year) are required for a full refresh of the database.

Comprehensive

ESG data are difficult to access at high quality for broad index universes. Ratings for typical multidimensional ratings models are very resource intensive for this many securities because of the lack of similarity in the raw data sources (e.g., company filings, news, regulatory action, etc.) and the thorough cleaning required. Usually, only larger data vendors can afford to support the large teams that need to be employed for such a task.

Normalization poses special challenges for ESG data, and it can have unintended consequences. For example, if normalization does not include an industry adjustment, specific industries will often have a uniform and persistent poor rating, and there will be little incentive for companies within these industries to improve. Also, if normalization does not result in a compact range of scores, then a few companies will exhibit such extremely high or extremely low scores that including or excluding them respectively can be used to ‘greenwash’ portfolios through quite small tweaks in the holdings that don’t materially affect the ESG profile, but which nevertheless result in big shifts in the headline figures.

Extensive

ESG considerations have only been the focus of broad attention for a short period of time, so there is a lack of historical datasets that can be reliably used to extend the present rating systems far into the past. Subjective aspects of the data, which require a high degree of manual intervention, exacerbate this challenge which is both costly to apply over large datasets and hard to do in a way that ensures internal consistency.

Furthermore, ESG considerations by their very nature tend to evolve considerably over time. For example, the rating of a company’s environmental credentials is unavoidably affected by the prevailing consensus at the time as to what issues materially affect the environment, by technological progress, and by regulations that can dramatically shift the boundaries of what is legally permissible, etc.

Seek Solutions

ESG data may have its share of issues, but we believe there are some ways to mitigate them. Learn more in our latest paper, Overcoming ESG Data Challenges.

Overcoming ESG Data Challenges  Explore the issues – and potential solutions – with ESG data. Read Paper

 

The views presented are for general informational purposes only and are not intended as investment advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation, or sponsorship of any company, security, advisory service, or fund. Nor do they purport to address the financial objectives or specific investment needs of any individual reader, investor, or organization. The views are subject to change at any time based upon market or other conditions, are current as of the date indicated, and may be superseded by subsequent market events or other conditions. The information, analyses, and/or opinions expressed are not intended to provide any specific financial, economic, tax, legal, investment advice, or recommendations for any investor. It should not be relied on as the sole basis for investment decisions. While every attempt is made to ensure that all information is accurate, there is no representation or warranty, express or implied, as to the accuracy and completeness of the statements or any information contained herein. Any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed. Past performance is no guarantee of future results. Investing involves risk, including fluctuation in value, the possible loss of principal, and total loss of investment.