Fidelity International’s vision is to deliver innovative client solutions for a better future. Sustainable investing, which factors in Environmental, Social and Governance (ESG) performance, is therefore an integral part of approach as a company that focuses on long-term sustainable outcomes.
Fidelity has developed a proprietary sustainability rating leveraging our internal research and interactions with issuers. The proprietary sustainability rating is based on the following principles:
Focusing on material issues
The rating focuses on 5 to 10 material ESG issues for 99 different subsectors. The list of ESG issues has been selected by the Sustainable Investing Team and the analysts based on their relevance, materiality and forward-looking nature.
Leveraging internal research capabilities
Analysts have access to a variety of sources of information to evaluate the ESG risks and opportunities of issuers under their coverage. Equity and fixed income analysts work together to rate and provide a qualitative comment on each ESG issue.
When rating companies, analysts consider the following components:
- Awareness: Is the company aware of its material risks? Are commitments to address these risks institutionalized across its operations?
- Action: How well does the company implement its policies to address key risks/take advantage of opportunities?
- Results: How effective are the company’s policies and programs in practice? Has the company been subject to significant controversies?
Analysts then assign an overall A to E rating (C being understood as the sector average) for each rated name on a sector relative basis. Whilst an equally-weighted average of the issue-level ratings is automatically provided, analysts have the discretion to override the overall rating if they consider that one issue may be more prevalent for a company.
Providing a forward-looking assessment
The rating is designed to generate a forward-looking and holistic assessment of ESG risks and opportunities. Analysts qualify the direction of change of companies’ ESG performance (positive, neutral or negative trajectory).
Incorporating engagement insights
Where the information is not available due to a lack of disclosure, analysts are encouraged to contact the company and ask questions about these issues to complete their assessments. Our analysts conduct about 15,000 company meetings a year and regularly use these meetings to gain information about companies’ ESG management.
Fidelity has developed an ‘ESG Rating App’ available to the investment team on our internal research system Insight. Analysts use the ESG Rating App to populate the ratings and record their commentaries. They can also flag companies they consider as good candidates for engagement. Names rated below C are automatically flagged for our Sustainable Investing Team to follow up with the company.
Visit www.fidelity.lu/sustainable-investing for more information including our ESG proprietary rating video.