A recent CAIA Association and UN Principles for Responsible Investment (PRI) event, hosted by Man Group, explored why and how quantitative investment managers are using ESG factors in their investment processes. The impetus comes partly from pension funds. Some 90% of them have a Responsible Investing (RI) policy, but less than 50% have formalised guidelines, with only 20% currently using ESG to guide allocations, according to Redington’s Tom Wake-Walker. These percentages should grow. Pension fund trustees think that incorporating ESG factors, such as climate change, into the investment process, is completely consistent with their fiduciary duty, according to HSBC Pension CIO, Mark Thompson.
The perception that discretionary investment processes are more amenable to ESG, than are quant processes, need not apply. Nearly half of assets run by Man Group’s fundamental quant unit, Man Numeric, have an ESG component, and the firm has been employing ESG factors since the mid-1990s, says CIO Rob Furdak.
Data is a greater challenge for quant strategies however, as many are exposed to thousands of companies: far more than some discretionary strategies. Man Numeric combines data from specialist providers (such as MSCI, Trucost and Sustainalytics) with its own analysis of new and unstructured data. Albertus Rigter of LGT Capital Partners notes that ESG data is not always as clean as he would wish, partly as some companies do not disclose enough detail. Systematica’s Gregoire Dooms sees very limited standardisation in ESG data but does not judge it to be any worse than other datasets such as financial statements. Louise Dudley of Hermes Investment Management finds data quality is generally improving and is often better in the UK.