How does T. Rowe integrate ESG factors?

Hope you are doing well and staying safe. Welcome back to our brief thoughts on ESG. This week, I’d like to comment on T. Rowe’s most recent ESG report, which provides interesting insights into how an investor with US$1 trillion in assets under management and presence in 51 countries does ESG integration. 

For starters, it stands out to see T. Rowe’s number 1 topic during its more than 11,000 meetings with corporates in 2019 was ESG Disclosure. This shows how relevant this topic has become in the investment process of the firm, how many companies are still looking for guidance on this topic, and of course how the data is still far from perfect so investors need to nudge companies to work on it. Within ESG, their Top 5 Engagement Topics by category were:

Environment: environmental disclosure, product sustainability, greenhouse gas emissions, responsible investing, environmental management.

Social: social disclosure, employee safety and treatment, proxy voting social, diversity, society and community relations.

Ethics: bribery and corruption, lobbying activities, proxy voting ethics, regulatory changes, compliance programs.

Governance: executive compensation, board composition, governance structure, shareholder rights, succession.

Also interesting, Rob Sharp’s comments on what they see in their clients: “On the client side, we see more clients wanting to add some level of “ESG” to their portfolios—be it ESG integration or reflecting specific values in their portfolios.” As we have said in the past, as the trend comes directly from end-investors, we would expect to see it gain even more relevance going forward (especially post COVID).

1. Rowe has its own ESG integration tool (called RIIM, or Responsible Investing Indicator Model), which already provides ESG analysis on thousands of companies, allows them to benchmark their portfolios both in equities and credit, and even has information for sovereign issuers. This clearly puts them ahead of many investors who are just starting to dig into ESG integration, but it also works as a footprint of sorts for them.

Furthermore, it is no surprise that given the global context we are living in, employee treatment is mentioned by both their Director of Research for Responsible Investments and their Head of Corporate Governance. We believe https://www.spglobal.com/en/research-insights/articles/aligning-investment-objectives-and-esg-values this topic will continue to be top of mind for a while, as it has become so visible, and will be very visible in the ensuing economic crisis (whatever shape this may take).

In Mexico (as in many places, albeit somewhat more pronounced) ESG integration is still a work in progress. Some local investors have been at it for more time than others, but we still haven’t found one which could provide a similar analysis to the one investors are being able to provide in more developed markets where ESG integration is more advanced. We would expect to see this process accelerate over the coming years both on regulatory requirements as well as peer pressure, and it will be interesting to see how engagement with companies on these topics evolve.

Hope this was of use. As usual, if there is anything we can help you with, please reach out. Also, don’t forget to recommend any ESG subject matter that you would like us to research and put in a forthcoming weekly

Regards,

Marimar

Partner, Miranda ESG

This week’s recommended reading

• ESG and Covid-19 Responses Share a Common Blueprint
• How much weight does an ESG commitment carry?
• Crisis shines spotlight on the ‘S’ in ESG
• Aligning Investment Objectives and ESG Values
• The great ESG mismatch: new data shows asset management industry is failing to provide the information investors need on ESG