New research advocates water-stress exposure as the next ESG investing challenges
Toronto, June 18, 2019 — Russell Investments today posted its latest research paper on environmental, social and governance (ESG) investing, which aims to drive the industry conversation beyond carbon and into water-stress as an investment challenge.
“We believe it’s time to move the ESG conversation from ‘black to blue’ and focus on water as the next concern to tackle in the environmental space,” said Emily Steinbarth, quantitative research analyst at Russell Investments. “A lot of work has gone into identifying how carbon can be measured, managed and invested in for tomorrow’s green economy. But there is more to the “E” in ESG than carbon.”
Steinbarth added that her research on how to incorporate water issues systematically into an investment portfolio reveals water risks are regional, multi-dimensional and very distinct from carbon. She concludes that currently available water-related investment tools are insufficient and, as a result, investors are inhibited from converting insights into meaningful action.
Steinbarth reviewed several industry frameworks that touch on the water issue, including: The Task force on Climate-related Financial Disclosures; The Sustainability Accounting Standards Board; The Global Reporting Initiative; United Nations Sustainable Development Goals; The Carbon Disclosure Project and Ceres’ Investor Toolkit.
Given the amount of work already devoted to the topic of water by these organizations, Steinbarth and colleagues at Russell Investments explored the collective insights and identified key considerations for investors seeking to incorporate water into an investment portfolio. The analysis revealed that data reporting is low, water usage is very concentrated, the market is highly exposed to water-stress regions, and imperfect but developing tools can be used to identify forward-looking information and proactive companies.
“Our research indicates that in industries where water is a material issue, approximately 29% of companies have set water-use targets,” Steinbarth said. “Overall, though, we see ample opportunities to engage with companies about improving water-related disclosures.”
To turn these insights into action, her paper presents a ‘decision tree’ approach, which sorts companies into three buckets: those targeted for improved water disclosure, those added to a water watchlist or underweighted and those where no water-related action is necessary. In using this structured approach, the following considerations are combined into a single, actionable framework: 1. Better disclosure is the first step; 2. Avoid penalizing companies who are industry leaders; 3. Identify the sources of highest known risk in the portfolio; and 4. Incorporate positive attributes and forward-looking metrics.
“Our investment professionals take responsible investing best practices seriously, and we remain committed to looking forward, researching new approaches and anticipating trends,” said Global Chief Investment Officer Pete Gunning at Russell Investments, who also chairs the firm’s Global Responsible Investment Committee. “We are committed to fostering industry dialogue on the issues that are important to our clients, their investments and the stakeholders they support.”
Gunning added that ESG-specific issues are embedded in the firm’s investment process at every step, and the firm’s investment professionals believe it is possible to incorporate responsible-investing considerations without sacrificing returns.
About Russell Investments Canada Limited
Russell Investments Canada Limited is a wholly owned subsidiary of Russell Investments Group, Ltd. Established in 1985, Russell Investments Canada Limited has its head office in Toronto.
About Russell Investments
With more than 80 years of experience, Russell Investments is a global investment solutions provider, dedicated to helping investors reach their long-term goals. Russell Investments offers investment solutions in 31 countries, manages C$388.5 billion in assets (as of March 31, 2019) and provides consulting services on US$2.3 trillion in assets (as of December 21, 2018). Russell Investments specializes in multi-asset solutions and investment and implementation services with a goal of delivering the best investment strategies, managers and asset classes to its clients around the world.
Headquartered in Seattle, Washington, Russell Investments operates globally with 21 offices, providing investment services in the world’s major financial centers such as New York, London, Tokyo and Shanghai.
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