Scientific Beta
In this paper, we introduce the Scientific Beta Sustainability FACTS, designed as a Factual Assessment of sustainability, providing full Coverage and Transition Support.In this paper, we introduce the Scientific Beta Sustainability FACTS, designed as a Factual Assessment of sustainability, providing full Coverage and Transition Support.
Discontent with ESG investing has been growing as investors recognise that conventional ESG ratings suffer from three fundamental shortcomings. First, ESG scores are often subjective: unlike credit ratings, which converge around well-defined measures of default probability, ESG scores rest on discretionary analyst opinions regarding how companies manage or claim to manage a wide range of ESG issues. Second, coverage is incomplete: many data points are reported by companies on a voluntary basis, giving investors a misleadingly narrow view of the investable ESG universe. Third, conventional ESG ratings offer no mechanism to support the climate transition; they provide static assessments without considering whether directing capital towards a given firm would help the firm finance green projects.
In response, we offer sustainability FACTS, metrics that are based on a Factual Assessment and provide full Coverage and Transition Support, with three key advantages:
- 0% subjectivity: All inputs are factual information, traceable to hard data, not opinions.
- 100% coverage: Market-based information complements reported data and fills in missing values with forward-looking information.
- 100% transition support: Every metric directs equity capital towards firms that need it most.