Angela Ashton
Leading independent investment consulting firm, Evergreen Consultants has revealed its ground breaking new Responsible Investment (RI) index, based on a unique grading system that focuses on an investment manager’s intent and actions, and not merely a set of portfolio metrics.
The Evergreen Responsible Investment Grading Index (ERIG Index)[1] assigns responsible investment grades to managed funds, providing financial advisers with a powerful tool for portfolio analysis and product search using RI filters.
Evergreen Consultants Director Angela Ashton says one of the challenges of RI has been a lack of clear definition and framework.
Ashton says: “As flagged earlier, given the absence of a consistent industry approach, we took on the task of developing our own index to comprehensively assess funds and portfolios on a wide range of RI themes.”
The ERIG Index uses the Responsible Investment Association Australasia’s (RIAA) Responsible Investment Spectrum as a foundation. RIAA sets out seven RI capabilities: ESG integration; negative screening; norms-based screening; active ownership; positive screening; sustainability-themed investments; and impact investing.
The ERIG Index provides a multi-faceted assessment of a fund manager’s RI capabilities by assigning a score in each of the seven categories to their fund. The scores can be compared with peer’s funds and asset class averages. Each fund is also assigned an overall Quartile ranking based upon the combination of its underlying scores in each of the seven RI characteristics.
Ashton says there are two ways a fund manager’s RI credentials can be assessed: a widely used ‘bottom-up’ approach that relies on publicly available data; and a ‘top-down’ approach.
“The top-down approach assesses how a manager has integrated ESG and RI issues within their investment processes, taking their intent and action into account. That is how the ERIG Index works,” Ashton says.
A bottom-up approach might give a tobacco company a high RI rating if the company has comprehensive environmental, social and governance programs.
“Such a ranking would not take into account the product the company is making and its impact on society. That is where our top-down approach will give advisers and their clients different guidance,” Ashton says.
The ERIG Index has already graded over 600 fund strategies, or 2,000 APIR codes, and this number will grow in the months to come, notes Ashton.
Fund managers complete a questionnaire, which is based on resources provided by both RIAA and the United Nations Principles for Responsible Investment (UNPRI). The questionnaire establishes both the high-level approach of the manager and the depth and breadth, and strengths and weaknesses of the fund’s investment process.
Ashton says: “Fund managers do not pay to have their funds graded. Instead, if they wish to, they can subscribe to the ERIG Index website and utilise the analytics tools available via the portal and highlight the ERIG Index Quartile Ranking assigned to their fund.
“Evergreen is also conscious of the need to inform and educate the advice community on RI, so the ERIG Index website has a knowledge library which houses a variety of informative papers and links to webinars provided by Evergreen, their business partners and fund managers.”
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