SSGA on ESG in Money Markets
State Street Global Advisors writes on "ESG in Money Markets," saying, "ESG factors significantly influence the sustainability of returns in all asset classes, and cash management plays a critical role in a fully developed investment portfolio." (See yesterday's "News," "State Street Files to Launch ESG Liquid Reserves Fund; LEAF Now Live.") The update explains, "Relative to other asset classes, integrating ESG considerations into publicly traded cash strategies presents unique challenges. This is driven by a combination of factors, including investor expectations, regulatory requirements and the nature of the underlying assets in MMFs. We are committed to solving these challenges, and we have dedicated a significant amount of research and resources to creating a cash management solution built on a unique and dynamic ESG scoring, screening and tilting process. In this paper, we examine the challenges of ESG integration in money markets, introduce our proprietary R-Factor platform for ESG data and provide solutions to incorporate ESG scoring for cash management strategies." They add, "Consistent, high-quality data can be the foundation for investing. Unfortunately, there are significant limitations to the data that has been available about companies' and issuers' ESG practices. Governments don't require companies to formally report on ESG and climate related data. As a result, companies are on their own to determine what is material to business performance; companies also are inconsistent in their disclosure of ESG and climate data. There are numerous third parties that provide ESG data and ratings, but these data providers have different methodologies with varying degrees of transparency. State Street aims to set a new standard for ESG data quality and scoring through our proprietary R-Factor platform. R-Factor is designed to address the current limitations of ESG data by providing a consistent, transparent methodology that creates standards for disclosure and financial materiality. We designed R-Factor based on the following objectives: Create a multi-source ESG data architecture platform; Utilize the Sustainability Accounting Standards Board's (SASB's) transparent framework to help clients and companies understand materiality; and, Integrate our proprietary Asset Stewardship insights into our scoring methodology."
