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Cambridge Associates

Service Providers Framework 2020

You are in Investment Consultancy » Investment research

Investment research

IC 10. Investment research activities

10.1. Indicate whether you incorporate ESG into your investment research services.

10.2. Indicate whether the following activities are part of your investment research process. Describe for each activity how you incorporate ESG.

Investment research activities

Describe how you incorporate ESG

          We perform deep asset level research covering ESG. This can take many forms. We often form expert working groups to consider key ESG factors for a given asset class. This will inform manager selection and research within asset classes and asset allocation decisions. There are monthly firmwide calls drawing together ESG experts to focus on particular asset classes, consider material ESG trends pertinent to them, and compare ESG strategies within them. We also publish high level research on ESG issues for a particular asset class. 

During 2019, we published a new paper in partnership with CREO which examined the rebound of returns from cleantech in the private investments asset class.

https://www.cambridgeassociates.com/insight/pathways-to-sustainable-investing/
For example, in 2016 we published a paper in collaboration considering the materiality of ESG data for financial returns for public equity asset class, with a particular emphasis on the importance of ESG data in emerging markets: 

https://www.cambridgeassociates.com/research/the-value-of-esg-data-early-evidence-for-emerging-markets-equities/ 

Our impact investing benchmarks (published in 2016 and continually updated through this reporting period) also analyze the performance of impact investments across the major private assets classes: venture capital and infrastructure (timber, real estate and infrastructure).
        

Describe how you incorporate ESG

          We fully incorporate consideration of ESG factors into our investment research process. We systematically monitor ESG issues in manager research and gather data on all managers’ ESG credentials as a formal and early step in the evaluation process. ESG data is then monitored on an ongoing basis. All new due diligence reports incorporate ESG considerations. Given the rapid evolution in this area, we are constantly updating this analysis. Over 2018 and 2019 we undertook a project to expand the amount of ESG data we collect from both public and private managers as part of our investment process. This has included expanding analysis of specific climate change risk metrics for example. Other data captured includes multiple details on ESG integration, exposure to controversial areas, the use of ethical exclusions and reporting/transparency. In 2019 we also on-boarded new climate risk tools for portgfolio level resewarch (scenario analyusis and new Value-at-Risk models)

With regards to stewardship, given we invest through third party managers we analyse the robustness of their stewardship (voting and engagement) policies, implementation and reporting as part of this ESG due diligence. For private investments, we consider how ESG initiatives are actively supported in underlying holdings. 

We also use this systematic data, along with use of third party ESG analytical tools on underlying holdings where appropriate, for bespoke ESG reviews and screening of client portfolios and the underlying holdings of investment managers. This covers ethical exclusions, controversies exposures, positive impact measurement, and climate risk metrics (e.g. emissions, emissions intensity, fossil fuel reserves exposure) 

Additionally, our dedicated ESG investment research resources track over 1,000 ESG strategies across the entire spectrum from socially responsible strategies through to specialist impact investment strategies in all asset classes.
        

Describe how you incorporate ESG

          Monitoring performance where appropriate versus custom ESG benchmarks.
        

Describe how you incorporate ESG

          Where we see attractive potential to meet our clients ESG and investment needs, we will often work with managers to facilitate the creation of new ESG solutions. This may take the form of separate account mandates meeting specific client ESG requirements (for example meeting the specific negative ethical exclusions of a client or climate related low carbon tilts to passive mandates). On other occasions, following our input, our clients will seed new pooled fund ESG solutions or new ESG share classes with our input on optimal design. In doing so, we have been able to play an important role in the development of strong ESG/RI products for asset owners emphasizing these issues. 

As a case study, during 2019 we helped to design a new global equity index with materially less climate risk (e.g. zero fossil fuels, material reductions in exposure to high emissions, and a positive tilt to green revenues and companies showing momentum on addressing climate risk) and an ESG overlay (e.g. exclusion of companies breaching UN Global Compact norms, enhanced ESG voting and engagement). Our European clients seeded a new fund launch tracking this new index.

We have used our scale in both private and public investments to negotiate better terms/transparency around ESG issues.
        

Describe how you incorporate ESG

          We have done deep research into benchmarks incorporating socially responsible or ESG considerations, and strategies which track them. We will consider the appropriateness of standard or ESG benchmarks on a case by case basis to best serve client needs. 

For example, in custom investment research project for one client we recently recommended a customized semi passive global equity solution incorporating both ESG factors (e.g. low carbon, divested from fossil fuels, positive tilt towards green revenues) and conventional factor tilts (e.g. Value). During this reporting period we have been working with a major provider of index products to create a new ESG index incorporating various climate related, ESG and ethical criteria which will be delivered in a pooled fund structure, initially for European investors.
A relevant ESG benchmark is helpful for separating out the impact of the active factor tilt from the ESG tilts (e.g. compare a fossil fuel free strategy to a fossil fuel free benchmark). A second comparison to a standard global benchmark provides information on the overall performance of the strategy.
        

Describe how you incorporate ESG

          We publish numerous thematic research pieces considering key ESG issues. Some are only provided to our clients, while others are made public as part of our efforts to help grow the field of ESG investing globally.

Recent examples include:
•	A Summary of Climate Change Science for Investors (2019)
•	Pathways to Sustainable Investing: Insights from Families and Peers (2019)
•	Mission-Related Investing — Insights and Perspectives (2018, a deep dive on our survey into ESG and impact investing practices amongst asset owners)
•	Social Equity Investing Righting Institutional Wrongs (2018)
•	Gender Lens Investing: Impact Opportunities through Gender Equity (2018)
•	Navigating the “Alphabet Soup” of Mission-Related Investing (2017)
•	Newly Issued Guidance for UK Pension Schemes Emphasizes Need to Consider ESG Factors (2017)
•	Considerations for ESG Policy Development (2017)
•	The Financial Performance of Real Assets Impact Investments: Introducing the Timber, Real Estate, and Infrastructure Impact Benchmarks (2017)
•	The Value of ESG Data: Early Evidence for Emerging Markets Equities (2016)
•	The Foundation of Good Governance for Family Impact Investors (2016)
•	Risks and Opportunities From the Changing Climate: Playbook for the Truly Long-Term Investor (2015)
•	Introducing the Impact Investing Benchmark (2015)
        

10.4. Additional information. [OPTIONAL]

We have not selected Equity, Credit or Quant research above since our core investment research focuses on manager research, capital markets research and thematic research. We don't have our own fund products. 

However, we deeply consider ESG issues when researching and monitoring equity, credit and quant managers.


IC 11. Demonstrating value on investment research

11.1. Describe how you measure, track or otherwise demonstrate your value on investment research activities.

          Our intensive and proprietary research provides the foundation for all client recommendations. 
Our client investment performance broken down by asset class is a demonstration of value added by our investment research activities.
        

11.2. Additional information. [OPTIONAL]

Our intensive and proprietary research provides the foundation for all client recommendations. 
Our client investment performance broken down by asset class is a demonstration of value added by our investment research activities. 

The following characteristics distinguish our research from that of our competitors:

  • Size and Global Reach of Staff. We have more than 175 professionals dedicated to capital markets and manager research in our global offices.
  • Independence. Managers do not compensate us in any way for inclusion in our databases or client searches.
  • Broad Coverage. In 2019, we conducted nearly 5,500 conference calls and on-site and off-site meetings with managers around the world. This coverage gives our investment directors an understanding of the global market and the managers operating in it.
  • Rich Proprietary Manager Databases. Our databases currently track more than 9,600 managers across asset classes and geographical regions.
  • Rigorous Process. Our manager evaluation process is rigorous and, unlike that of many of our competitors, does not rely solely on a mechanical screening process. Instead, our investment directors conduct in-depth analysis that considers both quantitative and qualitative factors.
  • Relevant Research Publications. We publish more than 100 reports annually on topics of concern to clients, including the global capital markets, alternative asset managers, investment manager fees, the relative merits of active versus passive management techniques, and other manager issues.
  • Custom Searches. In some cases, our manager research is undertaken to suit the request of an individual client. Additionally, we customize each manager recommendation to each client's unique risk profile and objectives.

 


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