By Fidelity

Our investment team discuss how we are evolving and enhancing our sustainability research and ratings. Find out more about how we are moving away from solely using ESG as a risk management tool, with an increasing focus on delivering real world change.

In recent years, we have seen rapid growth in interest in sustainability and rising desire for sophistication from investors in how it is approached. Today, investors are increasingly looking to influence positive change by directing capital to address ESG problems, not least climate change.

As part of this evolution, we have developed the core tools within our sustainable research platform, making enhancements. We have evolved our ESG ratings and version 2.0 now makes more in-depth assessments of how companies are managing the impacts of their businesses and mitigating any negative effects on all stakeholders, including workers, society, the environment, etc. We are also measuring alignment with the SDGs and how companies are making positive contributions to these goals; as part of this, we try to disaggregate different activities to provide more granular information.

Broadly speaking, what we are doing is moving away from using ESG as a risk management tool that contributes solely to financial outcomes. Instead, we are moving towards an approach focused on delivering real world change. It means much more holistic assessments of the opportunities and risks faced by an issuer, as well as more forward looking.

The first stage in our process regards materiality mapping – we have developed customised materiality maps for 127 individual industry subsectors, each with a different weighting combination of 14 social and 26 environmental indicators. These maps are determined by our research analysts alongside our dedicated sustainable investing team on the basis of each company’s operations, but also the context of their impact on other stakeholders, such as suppliers and broader society. For example, we would include Scope 3 emissions linked to airports, whereas other ESG ratings might not.

Our extensive corporate access enables us to engage with corporates to investigate sustainability issues in great depth. This is a key differentiator – we use a combination of qualitative and quantitative inputs, rather than relying on publicly-disclosed quantitative data as many external rating systems do. Our qualitative assessments are undertaken by our analysts, who have detailed knowledge of the companies in their coverage.

We are lucky to have relationships with and access to senior management teams all around the world that enable us to take this approach, it is not something that every firm can accomplish. Our local research teams are able to engage on ESG issues with countries in all cultures and languages in order to drive improvements in their behaviour.

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Important information
This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Changes in currency exchange rates may affect the value of an investment in overseas markets. A focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security’s ESG credentials can change over time. Issued by Financial Administration Services Limited and FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.