In December, we hosted a webinar covering Dynamo PMV’s latest work in supporting ESG & Impact programs. In it, Chander Balakumar of Dynamo’s R&D Product team, and Danielle Pepin, Dynamo PMV’s Head of Product and Consulting, addressed recent trends and advancements in the broader ESG landscape, as well as how Dynamo PMV’s ESG & Impact module streamlines data collection, monitoring, and transparency. Here are the key takeaways:
- Impact strategies that do not take ESG into account are missing the full picture
Citing a chapter he contributed to the Global Handbook of Impact Investing, Chander suggests that narrow sustainability goals are less ideal than a more comprehensive plan that works in tandem with ESG. Using the example of divestment from fossil fuels, he points out that immediate fossil fuel divestment fails to consider factors such as stranded assets, worker shift, and economic development, as well as the fact that fossil fuel is ingrained within virtually every product supply chain on the planet.
Since every step of a product’s lifecycle can be quantified by the amount of emissions it directly and indirectly produces, a more holistic impact strategy could apply emission mandates to mitigate fossil fuel exposure across all asset classes and sectors, structured together with ESG metrics. There are material ESG factors that affect the profitability and bottom line of a company, and as such, companies that focus only on emissions reduction could still be exposed to ESG risk.
As Danielle discussed in the demo, users of Dynamo PMV’s ESG & Impact module have access to a broad set of dashboards that allow them to monitor their ESG strategy and mitigate risk. The ESG Status display, for example, provides a cross-portfolio operational dashboard showing the status of annual ESG surveys, KPI updates, and the implementation of policies. You can also select a particular policy to see an overview of its implementation status across your portfolio.
Similarly, the ESG Policy view displays a list of policies and whether or not they have been implemented based on the policy library you choose. A progress report is provided as policies are implemented, and this dashboard can be shared with assets via direct access.
2. The industry is trending towards social issues as well as sustainability, while reporting is becoming more of a challenge
While there’s still a huge long-term focus on sustainability and the environment, particularly with climate change being a headline for many portfolios, this year saw more attention paid to social issues, with broader-focused sustainability funds shifting increasingly towards a social focus. These issues range from problems in the supply chain with COVID-19 to social unrest in the US.
We’ve also seen major changes that will make reporting more of a challenge. For example, the EU taxonomy for sustainable activities sets certain standards for whether economic activity can be described as sustainable, and affects participants or issuers offering financial products anywhere in the EU.
Another trend we’ve noticed is an uptick in consolidation in this space in terms of partnerships, taxonomies, and frameworks – a welcome change, partially driven by the increased specificity of some of these new requirements. More consolidating and partnerships drive us to better reporting and benchmarking.
One useful tool for tracking trends is Dynamo’s ESG Benchmark tool, which displays portfolio-wide benchmarks which can be filtered by metric, fund, sector and region, and then published back to your portfolio companies to let them know how they’re doing. This is expected to grow and include some partnerships later this year.
Some other changes we’ve noticed have been shifts in industry attitudes. Notable examples that Danielle highlights include an increase in PRI signatories (28% YOY), the introduction of a CFA certificate in ESG investing, CAIA curriculum updates with an expanded ethics portion that includes ESG, a continued increase in ESG and impact fundraising, and over 40% of Alternatives AUM now being managed by ESG-committed firms who have an ESG policy or belong to a relevant association, such as GRESB, PRI, or SASB.
3. Dynamo combines data types and maps different ESG frameworks together to provide a fuller picture
Successful ESG and impact investing requires a lot of storytelling. Dynamo’s ESG module combines different types of data, like case studies, risk mitigation action plans, KPIs, and annual surveys to help tell that story. Furthermore, the module maps different ESG frameworks together to translate between taxonomies. Finally, Dynamo partners with experts through communications with consultants and publishers of taxonomies, attendance at industry events, and the providing of feedback from the software side about the most efficient ways to organize data.
A key component of storytelling via the ESG module is the Survey tab, which is a great place to start for new users. We load a question bank across the entire portfolio, and as an administrative user, you can select and deselect those based on the asset. Assets can start with basic information and grow into more mature reporting over time. The user can see all of this directly by logging into this view and reference their answers from previous years.
Also helpful is the Action Plan view, which provides a summary of your key items and risk mitigation projects, tracking evolution and completion over time.
Additionally, at the cross-portfolio level, we can see the Impact snapshot, which shows the most important goals targeted for an asset, as well as a basic summary, trended performance over time, and year-to-date and previous-year targets and actuals, formatted to be easily exported and included as part of an ESG committee pack or used for publication.
As ESG and Impact become increasingly critical aspects of portfolio management, a comprehensive monitoring solution is more important than ever. To view a recording of this webinar, please email [email protected]. To learn how Dynamo can help you deploy and monitor a responsible investment strategy, schedule a demo.