Financial materiality, a pragmatic approach to ESG

Many ESG approaches have a priori limits which hinder the allocation of capital most efficiently. CPR Asset Management has instead developed for pension fund clients a pragmatic methodology that reflects which ESG criteria work best in different regions of the world.

While the richness of Environmental, Social and Governance (ESG) analysis grows and grows, its integration into securities management can often be simplistic. This is the view of Caroline Le Meaux, from Caisse des Depôts, the fiduciary manager for several French public sector pension schemes. “I built my first quant model using ESG data in 2002 and I don’t think that model- ling technics have changed in the same magnitude as in the financial data field,” she says.

For Le Meaux, averages are the real enemy because they blunt risk manage- ment and conceal many of the subtle- ties that ESG analysis supplies to asset managers. This was apparent after the scandal in 2016 of VW employees ma- nipulating emissions tests. “On aver- age, VW scored well in ESG but there were specific indicators in governance that acted as warning lights,” she re- calls.

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