Asset management activities are based on the ability to assess drivers of risks and returns. The integration of more difficult to monetize ESG factors that also affect risks and returns of a portfolio are key for a comprehensive assessment of investment drivers. Asset managers require new tools and alternative data to make better-informed investment decisions and to better evaluate the risk-return characteristics of actively managed portfolios. The challenge lies in the practical implementation of this approach. It requires leadership, a culture of innovation, and perhaps most importantly, effective engagement with all stakeholders.

We began our journey towards Sustainable Investing by restricting investments in tobacco and armaments decades ago, reflecting the values of the United Nations. OIM became a founding signatory to the PRI (Principles for Responsible Investment) in 2006. This was followed by investing in the first Green bonds in 2008 issued by the World Bank, and being the catalyst investor in Low Carbon Exchange Traded Funds in 2014. In recent years, OIM has focused on the integration of ESG considerations across all asset classes and climate considerations. OIM believes that portfolios which integrate material ESG metrics into their investment decision-making process, supported by active engagement, have the potential to contribute to the long term objectives of the Fund. This view is supported by several published academic studies and our own research. We see evidence that ESG considerations are beginning to enter the mainstream investment world 

OIM began introducing ESG metrics into the existing investment process, by giving portfolio managers a broader set of tools to consider in their investment decisions. For internal actively managed public equity portfolios, we are piloting a process tailored around PRI’s recommendations. In 2018, OIM implemented a new custom global equity index which can serve as a benchmark for other global equity investors. This index takes into account investment restrictions on companies which exceed a defined threshold of revenue generated from Tobacco, Weapons and Fossil Fuels. Within Fixed Income, we have been increasing our portfolio of Green bonds in line with net outstanding issuance in this market segment. For private markets, OIM integrates a comprehensive analysis of ESG issues into the due diligence process. We use GRESB as an ESG benchmark for real estate investments.

Integration of ESG considerations requires new tools and alternative datasets that are not conventionally used for supporting investment decision-making. OIM is leveraging its partnerships with key data providers to construct an internal proprietary ESG database, which helps distill material ESG data by separating the noise from the signal and provide the investment teams with more robust screening capabilities.