Targeting the ESG issues that impact performance – the material ESG score.
Russell Investments has developed a new way to measure a company’s ESG score.
The new material score evaluates only those issues that are financially important to a company.
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ESG scores are used for a variety of reasons, and there is no one universal ESG score. Therefore the traditional ESG scores incorporated into many financial products are not designed to focus on the ESG issues that are relevant to the financial performance of the company.
For example fuel efficiency has a bigger impact on the bottom line of an airline than it does on an investment bank
So, rather than adopt a one-size-fits-all approach, we have developed a new ESG scoring system that is specific to a company and their profitability
Not all ESG issues are equal
Our research showed that < 25% of data items in traditional ESG scores were considered material for two thirds of all securities in the Russell Global large cap universe.
From our initial research we have found a significant performance improvement when focusing on stocks that have higher material ESG characteristics.
In our research paper we provide a practical example of how the material ESG score can have a significant impact on the review of companies’ activity.