Outputs that matter
The report has a number of outputs, designed to help clients really engage with their investment. According to Salge, “it starts with how we assess the associated impacts resulting from a given investment we make. Underlying this, we scrutinise each and every underlying holding – whether bond or equity based – within the funds we invest in. We collect data on the most material impacts which these companies have through their products and services. We aggregate this up depending on our total invested share in the business’ enterprise value.”
Because of the detail the team go into, the analysis can be personalised to a particular client and scaled up or down in accordance with their objectives. Salge believes that this has been a very positive feature “it’s been very well-received by our clients and our adviser clients too. It means that the investor tends to engage a lot more with their investments as a result which ticks all the boxes.”
Engaging for change
Another significant output of this report is the team’s reporting on engagement. Salge comments “we have developed our own engagement milestone framework to do this. We really try to show clients not just the way we manage their money, it’s also the way that we steward that too.”
Investing for decarbonisation
When it comes to their approach to climate change, this also occupies a significant part of the analysis that is carried out. Salge explains “we try to look at it systemically, taking a big picture approach. In line with our focus on investing in solutions, we measure the carbon avoided by the companies in our portfolios, through providing carbon-saving technologies.
EQ has also measured the portfolios’ carbon emissions across the entire value chain of equity investments for multiple years. Of course, we look at carbon intensity compared to market benchmarks for reassurance we’re on the right track. This way we can make sure that our portfolios have a less significant contribution to climate change than others, and measure whether we are reducing this further over time by our engagement.
“We’re proud that the companies in our Positive Impact Portfolios show significantly smaller climate change contribution and are more carbon efficient, while also climate positive solutions.”
Finally, a new addition for this year’s report is a ‘stress test’. Salge tells us that this aims “to show how our positive impact investment approach is likely to protect investment value in a climate policy crackdown. With COP26 coming up soon, we’re expecting climate regulation to really intensify. We’re keen for that to happen because we’ve been investing on the right side of that for a long time.
“The stress test is just one model of many, but it helps us to quantify the effect of a really harsh policy crackdown in regard to carbon emissions. What would be the effect on our portfolio valuation if such a thing happened tomorrow for example? As the results from our latest impact report show, we’re much better positioned here when compared to others investing without a sustainable lens.
“In the event of such a crackdown, indices such as the FTSE 100 and the MSCI etc. would face a significant cut to their equity valuations compared to ours – which we have assessed as being negligible. This is a very different way of looking at it, at the opportunity side as well as the risk side.”
Bringing the conversation to a close, we talk about how the Covid-19 pandemic has impacted all our lives over the past 18 months. Salge rounds off on a positive note saying “amongst the many changes seen as a result of the emergence of Covid-19 is a sharpened appetite for sustainability. In the face of our many challenges, I hope that we can show clients that investing for positive impact is a powerful way to make a difference”.
About Louisiana Salge
Louisiana joined EQ Investors in October 2018 after completing a masters in sustainable business at Imperial College London.
She is now responsible for innovating EQ’s approach to sustainable investing. Louisiana oversees EQ’s ESG and impact integration strategy across all assets, EQ’s stewardship efforts and sustainability data reporting.
Previously, Louisiana graduated from UCL with a BSc in Geography and spent a year working for a Cleantech innovation research company before starting her masters. She now also holds the CFA IMC and CFA ESG Investing qualification.