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Sophisticated data analytics will give investment funds ESG edge


“ESG ratings and data are famously messy,” says Jason Mitchell (pictured) co-head of responsible investment at active investment manager Man Group. “If you look at the correlation among the scores of the data providers, there is in fact a lot of disagreement.”

As a result, the firm, along with its fundamentally-driven, quantitative investment arm Man Numeric, has recently launched Man Group ESG Analytics, a tool which aims to unpack some of what Mitchell calls this ‘problematic data’.

“For better or worse, the scores have become increasingly institutionalised on platforms and the ratings are almost too reductive now,” says Mitchell. “Often you might think you are getting ESG-driven performance, but the reality is, when you look at the factor exposure, it is often two thirds, if not more, being driven by other factors. This is part of the reason why we have dedicated over two years and a team of research scientists to building our own analytics tool.”
Using a combination of Man Group’s extensive quant resource and well-known ESG data providers (Sustainalytics, MSCI and Trucost for their environmental data), Man Group ESG Analytics aims to understand the problems, biases and statistical inconsistencies between different ESG datasets. The dashboard-style tool also uses an ESG scoring system, developed by Man Numeric, as an overlay to create a consensus, comments Mitchell. “In short, this is an attempt to better measure the data and manage it.
“In the past I think people have been very limited in terms of talking about how ESG is measured or what effect it has had on their portfolios,” explains Mitchell, “but now we believe it can be used as a measuring stick. We can now start to have a conversation about ESG in terms of performance attribution.”
Despite the fact that ESG data has not been around for long, Mitchell’s team find that their ESG analytics tool produces some compelling use cases. “For example, we are including ESG factors in our systematic funds, not just as an overlay but as driving active decisions too. Our work lends itself to quant strategies where models can be cleanly imposed. At the same time, we can’t be too prescriptive for our discretionary managers at Man GLG, where the emphasis is on reinforcing their investment process with a stronger understanding of ESG risk and exposure through the analytics tool.”
Mitchell acknowledges that the tool simplifies the ratings to some degree – the dashboard shows composite scores – but there are also sophisticated drill-down capabilities; it is possible to decompose indices and to look at single stock metrics, view the distribution of individual scores on a relative basis, as well as see the top five or bottom five ESG contributors to a portfolio, for example.
In addition, it is possible to view ESG scores separately at a company level or access a full portfolio view. The tool is applicable across asset classes in both equities and fixed income, as well as for both long-only and alternative strategies.
Also considering the current trend for ESG is INDOS Group. The depositary and fund oversight business has recently partnered with Vigeo Eiris to provide ESG data to support its independent ESG screening and verification service. Seymour Banks, head of ESG at INDOS Financial, believes that considering ESG factors is increasingly important for all investment managers. “If a fund manager can’t demonstrate that ESG factors are incorporated into their investment policy then they risk being immediately excluded from any further review. I anticipate them having an impact on performance as both risk factors and return drivers,” he says.

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