Maturity Model for ESG Portfolio Management

Implementing sustainable strategies based on data relating to environmental, social, and corporate governance (ESG data) is a hot topic in today’s financial industry, particularly in the asset management sector. As demand for sustainable products grows steadily among clients, public entities, and portfolio managers, regulators are already dealing with this issue and plan to ramp up their efforts considerably in the future. This paper introduces a maturity model for ESG portfolio management - designed specifically for portfolio managers - that addresses specific use cases/examples for use of the model.

A maturity model can be used as a structural approach to a topic that is relatively unfamiliar today, and as an overall guiding principle or vision statement (in the last phase of a maturity model). The maturity model for ESG portfolio management is designed for use in an asset management company’s front-office system (e.g., systems used to research and trade assets for a specific fund). There are five phases to this model:

1. Passive ESG selection

In the first phase of the ESG portfolio management maturity model, portfolio managers can only trade assets on their system (e.g., to rebalance the fund) that have been pre-selected. The portfolio managers will be working with a filtered list of assets without any further information about the underlying ESG metrics of the asset.

2. Forming signals

In this phase, portfolio managers receive a list of all relevant assets (which can still be pre-selected but based on detailed ESG criteria; in other words, a client may want sustainable investments for a specific fund, but explicitly excludes other citeria). When portfolio managers select an asset, they receive a prompt to buy the asset and/or information based on the ESG data (e.g., PAI data). The ESG data itself is still not accessible to the portfolio managers in this case, they are trading based purely on screen prompts.

3. Active ESG selection

In the third phase, portfolio managers will see the ESG metrics on the front office system (e.g., all ESG data or just a partial view) and will be able to compare these assets based on ESG data or actively search for alternative trades that align with the client’s sustainability strategy.

4. ESG recommendation

This phase entails making direct ESG recommendations for alternative trades. Portfolio managers can enter additional data about their personal ESG strategies (e.g., their favorites, stricter ESG thresholds, etc.) into the system and obtain a sub-list of comparable assets based on their input parameters. The assets are recommended by the system and tailored to each portfolio manager.

5. ESG solution

The final phase goes beyond the front-office system, integrating all previous phases and introducing additional features such as established business processes, audit tracking and compliance checks. Portfolio managers can focus on their clients’ needs and the performance of the fund without having to audit specific trades, because the system verifies all assets based on the relevant sustainability-related regulations.

You can download the full publication here and learn more about the “Maturity Model for ESG Portfolio Management - A Practical Guideline”.

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Autor

Dr. Torben Küpper

Senior Manager | Business Transformation

tkuepper@deloitte.de

Co-Autoren

Claudius Cohrt

Senior Consultant | Business Transformation

ccohrt@deloitte.de

Sophie Stahr

Consultant | Business Transformation

sostahr@deloitte.de