ESG “Super Factors”, Metrics, KPIs and Validation with Investors
(Investor section of Enterprise 2020 Collaborative Venture: “Valuing Non-Financial Performance”, (led by EABIS
and CSR Europe)
Which are the Environmental, Social and Governance (ESG) factors that the
investment community considers most likely to add long-term enterprise value ?
How do we measure these “super-factors” ?
Would these super-factors and metrics satisfy the requirements of the largest
European institutional investors ?
What are ESG Factors ?
ESG, short for environmental, social and governance issues, is an analytical framework which seeks
to identify, describe and analyze the impact of factors within these areas for the purpose of
investment valuation and decision-making.
Often, the term ESG is applied interchangeably with the term 'non-financial' (or sometimes 'extrafinancial'). Within the Delphi project we prefer ESG to non-financial. In our view, the financial/nonfinancial distinction is a reference to the early days of ESG understanding when it was deemed
necessary to point out that ESG aspects, factors, drivers etc. exist may in fact have financial
impacts; conventional investment analysis, however, generally did not (and largely still does not)
take these factors into account.
In the Delphi view, ESG factors should be placed in a context which considers ESG performance in
monetary terms. Investors should seek to enhance and protect their investment objectives through
robust processes which include the incorporation of ESG consideration in their analysis, when
appropriate. Not only can ESG factors have an impact on the reputation of companies, they may
represent significant operational risks and costs to business. Well-developed ESG management
systems can also generate efficiencies and enhance productivity, both of which have an effect on
shareholder value. Non-financial is no longer sufficiently precise.
Project Delphi seeks convergence around the materiality and impact of ESG factors on investment
and asset allocation decisions. There has been a great deal of research carried out into the financial
impact of ESG factors, which has produced a large number of ESG factors that are deemed to be
“material”. Project Delphi intends to bring these strands of research together to produce a short-list
of the most important factors and how to measure them.
1. The Context of Project Delphi
The Global ESG market (assets managed according to ESG principles) is becoming
mainstream. Estimated at $11.4 trn today and forecast to rise to $25 trn by 2015. (Eurosif)
There is little consensus between investors on ESG criteria, which makes it difficult to build
collective investment vehicles which cover the requirements of the majority of investors.
Intangibles (including ESGs) do account for substantial value.
o Which ones ? By how much?
Industry Shift from SRI to ESG - more than just negative screening
Mission Statement of Project Delphi:
Enhance understanding of the impact of the most important ESG factors (super-factors) on
the creation of enterprise value.
Provide a credible methodology for the measurement of the “super-factors”.
Provide a platform for future models
Recommendations to regulators
Provide agreed framework for the creation of collective investment vehicles and/or the
integration into investment decision making. This framework will be validated by the asset
Provide pointers to potential alpha creating and risk mitigating drivers.
Provide investor benchmark for corporates to be able to assess the financial impact of their
Promote a common language for dialogue between companies and investment professionals,
recognizing that both parties need information from each other.
From values-based to value-creating approaches
Avoid investments •
in companies that
are not compatible
with mission and
Align investments with •
values or mission
Active or Passive
Recognize materiality •
of some ESG issues •
Improve standards of
Positive screening •
Best in class
Active or Passive
Use ESG data to •
are expected to
ESG issues can be •
used to seek
Project intended to bring together the strands of research already carried out by asset
managers and other market participants, agree basis for measurement and obtain validation
from the large institutional investors.
Consensus between selection of capital market participants - short-list of material ESG
« super-factors ».
Convergence on accepted methodologies for measuring and reporting ESG activity by
companies and investors.
Validation of materiality of "super-factors" and their metrics by large European investors.
There are three work-streams to the project:
1. A panel of +/- 12 of Europe’s largest asset managers will agree on a short-list of material
“super-factors”. (led by Chris McKnett, Head of ESG, State Street Global Advisors)
2. A team from EFFAS (European Federation of Financial Analysts Societies) will define the
agreed metrics. (led by Ralph Frank, MD of DVFA / EFFAS)
3. A panel of some of Europe’s largest institutional investors will validate and amend the
findings of the two previous work-streams. (led by Frank Curtiss (head of Governance at
Railpen Investments & Chairman of ICGN Finance Committee)
Overview of Project Delphi
Initial « Straw-man » hypothesis drawn from VNFP Laboratory (including corporate and
initial asset owner input)
EFFAS + others
Short-list of « Super-factors » +
Metrics for the « superfactors »
Dialogue with panel of
Proposed « Super-factors » + metrics
Validation by panel of large Asset Owners
Wider survey of Asset Owners
Recommended Framework for ESG investment criteria, relative importance and
metrics to be included in VNFP Collaborative Venture report
Global CIO, State Street Global Advisors
Rick Lacaille, Greg Ehret, Benoît Fally, Mark Hooker, Ali Lowe, Mike Karpik, Wolfgang Hoetzendorfer, Chris McKnett,
Andrew Letts, Laura Aarnio, Susanne van Dootingh, John Swannick (EABIS), Ralf Frank (DVFA), Frank Curtiss (Railpen
Investments & ICGN chairman), Paolo Nazzaro (Telecom Italia), Erik-Jan stork (APG), Stefan Crets (CSR Europe), Other
Pension Fund CIO(s), Other Asset Managers, Academic(s)
Michael Polya, (SSgA)
Workstream 1: Asset Managers – Team leader: Chris McKnett (Head of ESG, SSgA)
Workstream 2: KPIs – Team leader: Ralf Frank (MD DVFA, EFFAS)
Workstream 3: Asset Owners – Team leader: Frank Curtiss (Railpen & ICGN)
Work-stream team leaders will be responsible for recruiting their team members as they see fit.
Timeline – June 2011 à March 2013
Contacts for Project Delphi:
Michael Polya – Project Manager –
Ralf Frank – DVFA –
John Swannick – EABIS –
Frank Curtiss – Railpen / ICGN
Chris McKnett – Head of ESG, SSgA
Delphi participants as of 14th December 2011:
State Street Global Advisors
DVFA / EFFAS
SG Corp & Investment Bank
Aberdeen Asset Management
DNB (Dutch Central bank)
BofA Merrill Lynch
Pension Protection Fund
SAM Research AG
PGGM (consultative role)
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