Alpha-Centric ESG Research

Kyle Rudden

BlackRock, Inc. provides diversified investment management services to institutional clients and to retail investors through various investment vehicles. The Company offers the BlackRock Funds and Blackrock Liquidity Funds, and also provides risk management services to fixed income institutional investors.

Last year, I published a series of Insights on major sustainability and ESG reporting frameworks; a high-level overview of each major framework, followed by specific cross-framework mappings and analyses. Then, somewhere in the middle of it all, standards organisations stirred the pot.There was a spate of mergers (e.g., SASB and IIRC into the Value Reporting Foundation) and vague threats of overhauling frameworks. I held back from publishing more in the series to see if, when, and how they alter the frameworks. Uncertainty remains, and these organisations move slowly.However, one remaining mapping in that series is "safe" to publish, the final SDG-to-GRI mapping (Sustainable Development Goals to Global Reporting Initiative), to align the SDGs with investment strategy, asset allocation, and securities selection. I say "safe" to publish, for two reasons:<ol>
<li>UN SDGs are not among organisations or frameworks undergoing changes, so no issue</li>
<li>GRI is revising, but it will take years to finalise, and the current version will be relevant</li>
</ol>

Last year, I published a series of Insights on major sustainability and ESG reporting frameworks; a high-level overview of each major framework, followed by specific cross-framework mappings and analyses. Then, somewhere in the middle of it all, standards organisations stirred the pot.There was a spate of mergers (e.g., SASB and IIRC into the Value Reporting Foundation) and vague threats of overhauling frameworks. I held back from publishing more in the series to see if, when, and how they alter the frameworks. Uncertainty remains, and these organisations move slowly.However, one remaining mapping in that series is "safe" to publish, the final SDG-to-GRI mapping (Sustainable Development Goals to Global Reporting Initiative), to align the SDGs with investment strategy, asset allocation, and securities selection. I say "safe" to publish, for two reasons:
UN SDGs are not among organisations or frameworks undergoing changes, so no issue
GRI is revising, but it will take years to finalise, and the current version will be relevant


Sustainability/ESG Frameworks: Mapping the SDGs and GRI (Bi-Directional, Based on TBL Pillars)

MSCI Inc. provides investment decision support tools to investment institutions worldwide. The Company produces indices and risk and return portfolio analytics for use in managing investment portfolios.

Recently, I published several Insights that are high-level overviews of major sustainability and ESG reporting frameworks. As I explained in those reports it wasn't an academic exercise; their primary purpose is as background context and reference for upcoming Insights on mapping the Sustainable Development Goals (SDGs) to issuer-level frameworks. This is the first of those mapping reports.Mapping the government-level SDGs to issuer-level frameworks like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) can benefit investors regardless of sustainability ideology. But it is particularly relevant for "SDG investing" – i.e., the integration and alignment of the SDGs with investment strategy, asset allocation, and securities selection.Formal SDG investing is an extremely case-specific endeavor and too expansive a topic to cover in a single report. This Insight is a good start, and addresses a critical early step in the SDG investing process, framework mapping. Specifically, mapping SDGs to GRI in a certain way. I will soon follow this with alternative approaches and mappings of the SDGs and GRI, as well as SASB and others.The following is both a summary and rough outline of this Insight:<ul>
<li>Global SDG performance has a direct bearing on macro and micro investment risks and upside potential. SDG consideration isn't just about positive societal impact; it can also drive alpha.</li>
<li>The SDGs weren't designed as an investing framework and even though issuers are increasingly reporting SDG performance, the SDGs must be supplemented with issuer-level frameworks.</li>
<li>GRI is the most universally-adopted of the large, global generalist reporting frameworks. Thus, mapping SDGs to GRI is an obvious place to start (SASB, a close second, will be covered soon).</li>
<li>The particular approach and mapping discussed in this report is "SDG-to-GRI" in direction and based on matching specific wording of issues (versus, for example, by ESG pillar generally).</li>
<li>Effectively, that approach (along with the broader scope of the SDGs vis-à-vis GRI) results in a highly-accurate but incomplete mapping. Still thorough, but prime for another approach.</li>
</ul>

Recently, I published several Insights that are high-level overviews of major sustainability and ESG reporting frameworks. As I explained in those reports it wasn't an academic exercise; their primary purpose is as background context and reference for upcoming Insights on mapping the Sustainable Development Goals (SDGs) to issuer-level frameworks. This is the first of those mapping reports.Mapping the government-level SDGs to issuer-level frameworks like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) can benefit investors regardless of sustainability ideology. But it is particularly relevant for "SDG investing" – i.e., the integration and alignment of the SDGs with investment strategy, asset allocation, and securities selection.Formal SDG investing is an extremely case-specific endeavor and too expansive a topic to cover in a single report. This Insight is a good start, and addresses a critical early step in the SDG investing process, framework mapping. Specifically, mapping SDGs to GRI in a certain way. I will soon follow this with alternative approaches and mappings of the SDGs and GRI, as well as SASB and others.The following is both a summary and rough outline of this Insight:
Global SDG performance has a direct bearing on macro and micro investment risks and upside potential. SDG consideration isn't just about positive societal impact; it can also drive alpha.
The SDGs weren't designed as an investing framework and even though issuers are increasingly reporting SDG performance, the SDGs must be supplemented with issuer-level frameworks.
GRI is the most universally-adopted of the large, global generalist reporting frameworks. Thus, mapping SDGs to GRI is an obvious place to start (SASB, a close second, will be covered soon).
The particular approach and mapping discussed in this report is "SDG-to-GRI" in direction and based on matching specific wording of issues (versus, for example, by ESG pillar generally).
Effectively, that approach (along with the broader scope of the SDGs vis-à-vis GRI) results in a highly-accurate but incomplete mapping. Still thorough, but prime for another approach.


Sustainability/ESG Frameworks: Mapping the SDGs and GRI (SDG-To-GRI, Based on GRI's Interpretation)

This Insight is a very brief look at the Sustainability Accounting Standards Board (SASB) reporting framework. It is mostly intended as background for an upcoming report mapping SASB's standards to the UN's Sustainable Development Goals (SDGs) – and vice versa – then applying that to specific investing strategies. SDG integration is interesting for a number of reasons, mainly these three:<ul>
<li>
Data: Unlike for other areas of sustainable/ESG investing, there is a wealth of data available on country-level SDGs performance. That is because the SDGs are designed to be quantifiable and based on non-commercial data from global (e.g., World Bank, OECD) and local organisations.</li>
<li>
Alpha: With nearly five years of history (the SDGs were launched in 2015 and effective in 2016) for that data, we have learned that the SDGs are good indicators of macro risks (e.g., economic, political) and opportunities, particularly for larger, diversified global portfolios.</li>
<li>
Impact: How SDGs affect portfolios is relevant to all investors. How portfolios might affect SDG outcomes is of more (but not exclusive) interest to investors who value "ESG Impact" as well as "ESG Alpha." Mapping investments (using SASB) to the SDGs enhances both, especially impact.</li>
</ul>See <a href="https://www.smartkarma.com/insights/sustainability-esg-frameworks-sdgs-un-sustainable-development-goals" target="_blank" data-smartkarma-citation="insights:38306" rel="noopener">Sustainability/ESG Frameworks: SDGs (UN Sustainable Development Goals)</a> for a detailed into to the SDGs, and <a href="https://www.smartkarma.com/insights/sustainability-esg-frameworks-overview" target="_blank" data-smartkarma-citation="insights:40728" rel="noopener">Sustainability/ESG Frameworks: Overview</a> for a bird's-eye view of all major ESG and sustainability frameworks (as well as other categories in the overall ecosystem).I am doing the same thing with the Global Reporting Initiative (GRI) framework; I will be mapping the SDGs to GRI and publishing an Insight about it relatively soon. In preparation for that, I wrote an overview of GRI – <a href="https://www.smartkarma.com/insights/sustainability-esg-frameworks-gri-global-reporting-initiative" target="_blank" data-smartkarma-citation="insights:40840" rel="noopener">Sustainability/ESG Frameworks: GRI (Global Reporting Initiative)</a>.

This Insight is a very brief look at the Sustainability Accounting Standards Board (SASB) reporting framework. It is mostly intended as background for an upcoming report mapping SASB's standards to the UN's Sustainable Development Goals (SDGs) – and vice versa – then applying that to specific investing strategies. SDG integration is interesting for a number of reasons, mainly these three:

Data: Unlike for other areas of sustainable/ESG investing, there is a wealth of data available on country-level SDGs performance. That is because the SDGs are designed to be quantifiable and based on non-commercial data from global (e.g., World Bank, OECD) and local organisations.

Alpha: With nearly five years of history (the SDGs were launched in 2015 and effective in 2016) for that data, we have learned that the SDGs are good indicators of macro risks (e.g., economic, political) and opportunities, particularly for larger, diversified global portfolios.

Impact: How SDGs affect portfolios is relevant to all investors. How portfolios might affect SDG outcomes is of more (but not exclusive) interest to investors who value "ESG Impact" as well as "ESG Alpha." Mapping investments (using SASB) to the SDGs enhances both, especially impact.
See Sustainability/ESG Frameworks: SDGs (UN Sustainable Development Goals) for a detailed into to the SDGs, and Sustainability/ESG Frameworks: Overview for a bird's-eye view of all major ESG and sustainability frameworks (as well as other categories in the overall ecosystem).I am doing the same thing with the Global Reporting Initiative (GRI) framework; I will be mapping the SDGs to GRI and publishing an Insight about it relatively soon. In preparation for that, I wrote an overview of GRI – Sustainability/ESG Frameworks: GRI (Global Reporting Initiative).

Sustainability/ESG Frameworks: SASB (Sustainability Accounting Standards Board)

Herein is a very brief synopsis of the Global Reporting Initiative (GRI) sustainability/ESG reporting framework. This should be of interest to anyone new to sustainable/ESG investing, but the primary purpose is as background for more practical Insights on particular sustainable investing strategies.Specifically, mapping issuer-level reporting frameworks (in this case, GRI) to the UN's Sustainable Development Goals (SDGs) – and vice versa – then applying it to securities selection and portfolio management. SDG integration is undergoing a proliferation for a number of reasons, including:<ul>
<li>
Data: Unlike for other areas of sustainable/ESG investing, there is a wealth of data available on country-level SDGs performance. That is because the SDGs are designed to be quantifiable and based on non-commercial data from global (e.g., World Bank, OECD) and local organisations.</li>
<li>
Alpha: With nearly five years of history (the SDGs were launched in 2015 and effective in 2016) for that data, we have learned that the SDGs are good indicators of macro risks (e.g., economic, political) and opportunities, particularly for larger, diversified global portfolios.</li>
<li>
Impact: How SDGs affect portfolios is relevant to all investors. How portfolios might affect SDG outcomes is of more (but not exclusive) interest to investors who value "ESG Impact" as well as "ESG Alpha." Mapping investments (using GRI) to the SDGs enhances both, especially impact.</li>
</ul>See <a href="https://www.smartkarma.com/insights/sustainability-esg-frameworks-sdgs-un-sustainable-development-goals" target="_blank" data-smartkarma-citation="insights:38306" rel="noopener">Sustainability/ESG Frameworks: SDGs (UN Sustainable Development Goals)</a> for a fairly detailed introduction to the SDGs, and <a href="https://www.smartkarma.com/insights/sustainability-esg-frameworks-overview" target="_blank" data-smartkarma-citation="insights:40728" rel="noopener">Sustainability/ESG Frameworks: Overview</a> for a brief overview of all major sustainability/ESG frameworks (as well as other categories in the overall ecosystem).Soon, I will publish an Insight like this but pertaining to the Sustainability Accounting Standards Board (SASB) framework, also as context for an Insight mapping the SDGs to SASB.

Herein is a very brief synopsis of the Global Reporting Initiative (GRI) sustainability/ESG reporting framework. This should be of interest to anyone new to sustainable/ESG investing, but the primary purpose is as background for more practical Insights on particular sustainable investing strategies.Specifically, mapping issuer-level reporting frameworks (in this case, GRI) to the UN's Sustainable Development Goals (SDGs) – and vice versa – then applying it to securities selection and portfolio management. SDG integration is undergoing a proliferation for a number of reasons, including:

Data: Unlike for other areas of sustainable/ESG investing, there is a wealth of data available on country-level SDGs performance. That is because the SDGs are designed to be quantifiable and based on non-commercial data from global (e.g., World Bank, OECD) and local organisations.

Alpha: With nearly five years of history (the SDGs were launched in 2015 and effective in 2016) for that data, we have learned that the SDGs are good indicators of macro risks (e.g., economic, political) and opportunities, particularly for larger, diversified global portfolios.

Impact: How SDGs affect portfolios is relevant to all investors. How portfolios might affect SDG outcomes is of more (but not exclusive) interest to investors who value "ESG Impact" as well as "ESG Alpha." Mapping investments (using GRI) to the SDGs enhances both, especially impact.
See Sustainability/ESG Frameworks: SDGs (UN Sustainable Development Goals) for a fairly detailed introduction to the SDGs, and Sustainability/ESG Frameworks: Overview for a brief overview of all major sustainability/ESG frameworks (as well as other categories in the overall ecosystem).Soon, I will publish an Insight like this but pertaining to the Sustainability Accounting Standards Board (SASB) framework, also as context for an Insight mapping the SDGs to SASB.

Sustainability/ESG Frameworks: GRI (Global Reporting Initiative)

The UN Sustainable Development Goals (SDGs) framework is the world's de facto roadmap to global sustainability. When the SDGs were announced in 2015, the sustainable/ESG investing community welcomed them, but it took time to understand how material the SDGs are at the portfolio-level.<ul>
<li>
Alpha: There is an abundance of data available on SDG performance, cover every major global economy, and we've learned that the SDGs can be a good barometer for macro risks (economic, political, etc.), and thus alpha – at least for larger, diversified global portfolios.</li>
<li>
Impact: The above – the effect of SDG performance flowing downstream to portfolios – should of interest to all investors. For investors with a more altruistic bent, investing with the SDGs in mind can enhance the societal impact of investment decisions and portfolio performance.</li>
</ul>That overall concept – mapping the SDGs to company-level frameworks and integrating them into investing strategies – is the focus of two upcoming reports; one for the Global Reporting Initiative (GRI) framework, and one for the Sustainability Accounting Standards Board (SASB).Just the mapping and strategy parts of those reports will be dense, so I am presenting introductory content under separate cover. This prevents those Insights from devolving into unreadable tomes, but it also provides stand-alone overviews of major frameworks for a more diverse audience.In <a href="https://www.smartkarma.com/insights/sustainability-esg-frameworks-overview" target="_blank" data-smartkarma-citation="insights:40728" rel="noopener">Sustainability/ESG Frameworks: Overview</a>, I presented a brief, high-level overview of all major reporting frameworks. This is a deeper introduction to the SDGs which will be followed up by GRI and SASB, together the "Big Three" sustainability/ESG frameworks.

The UN Sustainable Development Goals (SDGs) framework is the world's de facto roadmap to global sustainability. When the SDGs were announced in 2015, the sustainable/ESG investing community welcomed them, but it took time to understand how material the SDGs are at the portfolio-level.

Alpha: There is an abundance of data available on SDG performance, cover every major global economy, and we've learned that the SDGs can be a good barometer for macro risks (economic, political, etc.), and thus alpha – at least for larger, diversified global portfolios.

Impact: The above – the effect of SDG performance flowing downstream to portfolios – should of interest to all investors. For investors with a more altruistic bent, investing with the SDGs in mind can enhance the societal impact of investment decisions and portfolio performance.
That overall concept – mapping the SDGs to company-level frameworks and integrating them into investing strategies – is the focus of two upcoming reports; one for the Global Reporting Initiative (GRI) framework, and one for the Sustainability Accounting Standards Board (SASB).Just the mapping and strategy parts of those reports will be dense, so I am presenting introductory content under separate cover. This prevents those Insights from devolving into unreadable tomes, but it also provides stand-alone overviews of major frameworks for a more diverse audience.In Sustainability/ESG Frameworks: Overview, I presented a brief, high-level overview of all major reporting frameworks. This is a deeper introduction to the SDGs which will be followed up by GRI and SASB, together the "Big Three" sustainability/ESG frameworks.

Sustainability/ESG Frameworks: SDGs (UN Sustainable Development Goals)

Understand the sustainability framework ecosystem