A recent webinar titled ESG Integration Across Asset Classes displayed Bloomberg’s focus on recognizing the need for data centered, environmental, social and governance (ESG) metrics within every investor’s portfolio. Bloomberg is a privately held financial, software, data, and media company headquartered in Midtown Manhattan, New York City.
As a part of Bloomberg’s Portfolio & Index Research Conference, the webinar provided technical details on the firm's efforts to measure ESG. (Creative Investment Research has been measuring ESG impacts since 1989.) A three-pronged approach—analyzing the carbon transition, power sector transition, and climate policies—underlies Bloomberg’s climate scores.
With a focus on climate impact and commodities, Bloomberg presented two approaches to measuring carbon emissions—the number one priority of the Paris Climate Agreement benchmarks.
First, Bloomberg experts used company level data and Bloomberg Industry Classification Standard (BICS). Second, they used a life cycle analysis, which sources data from academic studies, industry reports, production models, and government agencies. Within the life cycle analysis, the “cradle-to-grave” concept shows the part of the life cycle that corresponds to the underlying futures contract of the asset.
Modern futures trading dates to 1730 in Japan. During the 16th century, Western commodity futures also began trading in England. (Investopedia). Society created futures contracts as a means for farmers (sellers) and dealers (buyers) to finance the equipment, wages, and other factors needed to raise crops, thus ensuring food security in the future.
By integrating carbon pricing factors into futures, Bloomberg attempts to ensure climate security. This new, yet historically warranted approach to financial markets and ESG integration emphasizes the importance of re-analyzing the financial tools available to investors today to solve our modern issues in society.
Bloomberg’s ESG reports outline in greater detail the statistical scores-based tilts and mathematical methodologies of this research. This event used a global context by assessing different countries’ scores; Denmark, Sweden, and Ireland received the top three climate scores.
A comprehensive framework to measure ESG and incorporate it into many asset classes is a strong indicator of leadership in the impact investing space by Bloomberg. The knowledge that this project has highlighted, however, should continue to be explored beyond assigning scores. The same critical thinking that ties the long history of risk-aversion in financing agricultural futures contracts with the need to create risk-aversion frameworks in futures for carbon emissions will lead to greater, structural positive change for all of society.
Thus, ESG integration has applications both in frameworks and indices, and in the larger context of how society should look at financing for a better future, today.
The speakers at this event were Kartik Ghia, Steve Hou, Casey C. Clark, Aj Lindeman, Robert Huber, Brian Colantropo, Patricia Torres, and Antonio Lazanas.
This event took place on June 17, 2021 at 9am.