To support our clients as ESG moves into mainstream investing, we are launching Barclays Fundamental ESG Research. This new pillar will complement the two existing pillars of Barclays ESG Research: our Thematic ESG Research, from our Sustainable & Thematic team and our Systematic ESG Research, from our Quantitative Portfolio Strategy team.
These three pillars of Barclays ESG Research will feed into and inform each other to produce new and actionable ESG insights that enable investors and asset owners to assess the extent of adoption of ESG principles by the companies we cover; the impact of regulatory and consumer change on markets and industries; and how and to what extent adoption of ESG is influencing the performance and valuation of securities.
The rise of ESG from niche to mainstream
In the 15 years since ‘environmental, social and governance’ was coined as a term by the UN Global Compact, ESG investment has grown from a niche position to one that influences tens of trillions of dollars in assets under management.
This has been driven by asset owners who increasingly wish to align their investment decisions with their own values. ESG factors capture non-financial information that is material to financial performance, as well as regulations and voluntary codes such as the UN’s Principles for Responsible Investment (PRI) that require investment managers to report on ESG considerations.
Yet there is a significant ‘aspiration gap’ between the amount of AUM that falls under the umbrella of high-level commitments such as the PRI and the de facto implication of ESG constraints on investment processes. In our view, closing this gap is set to be the biggest driver of ESG adoption over the next few years. In particular, we think that asset managers and owners will be increasingly pressed to embed ESG considerations into all the money that they manage – not just specialist ESG funds.
Supporting investors’ ESG activities
Barclays Fundamental ESG Research will support the three core approaches used by investors to integrate ESG into their portfolios:
Negative screening – Our Fundamental ESG Research will track the sectors and issuers most affected by negative screening and analyse the impact of investor divestment on valuations.
Positive screening – We will seek to identify the positive impact that companies are having on the environment and the societies in which they operate. We will track how the companies we cover are being scored by independent ESG score providers and whether we believe they are being accurately assessed. Given the many challenges that ESG score-providing faces, our focus will be on aggregating existing ESG scores rather than creating an ESG score of our own.
ESG products and securities – We will track issuance of all types of ESG products and securities, assess how valuations differ from non-ESG equivalents, and provide analysis on which structures are best aligned with an investor’s underlying ethos of ESG investment.
Finally, for investors focussed on direct corporate engagement as a means to improve ESG standards, our fundamental research will seek to highlight areas of weakness and opportunities for improvement at the company level.
We believe our three-pillared approach, combining fundamental, thematic and systematic ESG research comprehensively reflects the balance of the ESG ecosystem. With our thematic and systematic research teams having already built up a body of analysis and opinion – which we summarise in this report – we are well positioned to deliver differentiated and actionable insights that can help investors more successfully align their investment choices with their ESG goals and values.
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About the analysts
Zoso Davies is a Director in the European Credit Strategy team at Barclays, covering Investment Grade and Macro Credit. As part of his role, he regularly contributes to cross-asset and thematic research. Zoso joined Barclays in 2010, prior to which he was awarded a PhD in Physical Chemistry by University College London.
Charlotte Edwards is in the European Credit Strategy team, covering Investment Grade credit. Prior to joining Barclays in 2017, she spent nearly four years at HSBC, where she worked in the European Credit Strategy team in a similar capacity, following a period working in European economics research. Charlotte graduated with a degree in Economics from Bath University and is a CFA charter holder.
Hiral Patel is the Head of Sustainable & Thematic Investing within Equity Research at Barclays. Hiral joined the team in June 2018, following five years covering the European Technology, Payments and FinTech sector. Prior to that, she qualified as a Chartered Accountant with KPMG, where she worked in Audit covering Financial Services. Hiral graduated from the University of Warwick with a degree in Economics, Politics and International Studies.
Maggie O’Neal is a Director in Credit Research at Barclays, based in London. She covers the European High Yield Industrials sector and European High Yield/Investment Grade Chemicals and Metals & Mining sectors. Prior to joining Barclays in 2015, Maggie spent ten years at Deutsche Bank where she worked on the European High Yield Research team in a similar capacity following a brief period in Credit Risk Management (Emerging Markets).