Environmental, social, and governance (ESG) factors are among the most significant drivers of change in the world today with major implications for businesses and long-term investors. Global markets are increasingly focusing on factors that drive long-term enterprise value, and intangibles now represent the lion’s share of this value. Investors regard many ESG matters as critical elements of corporate resilience with a growing focus on corporate behavior, climate change, technological evolution, social equity, and human capital management.
For asset managers, the challenge is in managing the proliferation of ESG data sources as the market continues to focus on driving progress toward consistent, comparable, and decision-useful ESG information. At the same time, a responsible investment framework must facilitate a greater understanding of not only the ESG factors driving enterprise value today, but those most likely to do so tomorrow and into the future. This is the concept of dynamic materiality.
Here we describe how the Public Sector Pension Investment Board, one of Canada’s largest pension investment managers, leveraged FactSet to develop an ESG Composite score that enables PSP’s investment teams to integrate ESG information with data-driven insights. The ESG Composite score also incorporates the standards of the Sustainability Accounting Standards Board (SASB). The ability to analyze corporate performance through the lens of SASB’s five dimensions and 26 General Issue Categories in addition to traditional financial considerations shed new light on the pathways to enterprise value creation using the lens of dynamic materiality.
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For more information, refer to the SASB/PSP case study: Public Sector Pension Investment Board (PSP Investments): Integrating SASB Standards into Dynamic ESG Composite Score.