Scientific Beta

This paper focusses on Scientific Beta’s Enhanced ESG Reporting framework, which covers ESG Norms, Climate Transition Risks, Climate Change and Greenwashing. The ESG Norms, Climate Transition Risks and Climate Change analytics are offered on a complimentary basis for all indices offered, while the Greenwashing analytic is complimentary for ESG/Climate indices.

Incorporating Environmental, Social and Governance (ESG) dimensions into investment analysis and decision-making is a growing norm due to higher regulatory and voluntary reporting needs, as well as investors’ efforts to account for the financial risk and performance impacts of ESG considerations. Scientific Beta recognises the growing diversity of investor motivations for ESG incorporation, and its Climate Impact Consistent Indices, ESG and Low Carbon Fiduciary Options for multi-factor indices, as well as its Enhanced ESG Reporting are designed to serve the needs of both ethical and socially responsible investors and business-case ESG investors. These ESG/Climate indices and reporting tools extend the two hallmarks of Scientific Beta’s offering into the ESG space, namely providing full transparency on its indices’ financial risks and performance and maintaining fiduciary options to control non-diversifiable risks.

Dissociating from companies involved in controversial products and conducts;
Incentivising the respect of global norms and/or the transition to a low-carbon economy;
Improving investment resilience to climate change;
Shunning investments that could create reputational and liability risks;
Altering the portfolio’s expected risk/return profile based on financially material ESG considerations.

The ESG Norms analytics cover exposure to ethical norms violations, controversies, issuance of only non-voting shares, and product-based violations on tobacco and controversial weapons. Meanwhile, an extensive range of carbon metrics are provided in the Climate Transition Risks analytics, which provide insights on asset stranding risks and the impact of the transition to a low-carbon economy. These analytics include exposure to carbon-related assets, exposure to fossil-fuel sub-sectors, reserved emissions, power generation capacity from green and brown sources, and weighted average carbon intensity ( WACI) decomposition, which breaks down a portfolio’s relative WACI into sector and stock allocation effects. Additional metrics on the relevant carbon intensity, decarbonisation, and activity constraints for indices designed to comply with the European Union (EU) Climate Transition Benchmark (CTB) or Paris Aligned Benchmark (PAB) regulations are also provided in the Climate Transition Risks analytics. Besides Climate Transition risks, a separate set of analytics on Climate Change is also included, highlighting carbon-footprinting metrics, which reflect emissions attributable to the portfolio, and exposure to physical risks of climate change. Finally, to better understand greenwashing risks, a set of Greenwashing analytics is included for ESG/Climate indices to focus on inconsistent stock-level signalling in relation to companies’ carbon performance.

The comprehensive range of analytics provided is aligned with widely accepted standards in ESG reporting, including responsible investment initiatives such as the Principles for Responsible Investment and global consensus-based norms such as the United Nations Global Compact (UN Global Compact). A specific report covering ESG metrics in the EU Benchmarks Regulation (BMR) is also available in a downloadable format. In addition, all the carbon metrics highlighted in the Task Force on Climate-Related Financial Disclosures (TCFD) guidelines are covered in the analytics.