ESG Integration in Sovereign Portfolios

By 10 minute read

Aegon Asset Management Netherlands believes environmental, social, and governance (ESG) factors are an important component of sound fundamental credit analysis that can drive alpha and help manage risk in our clients’ portfolios. Though historically not always referred as ESG, understanding country governance has always been a critical part of sovereign investing and the ESG underlying concepts have helped define our investment methodology for decades, being an important and evolving part of our investment process today.

ESG more than tick-the-box exercise

We have been conducting in-depth analysis of the opportunities and challenges related to ESG integration in sovereign portfolios. We believe that ESG integration is more than a tick-the-box exercise, and that instead, it should be a comprehensive analysis that is fully part of the investment process. Consequently, we explored the current standing of research, tools and data available and the usefulness of country ESG scores computed by specialised providers.

These exercises proved ESG integration to be a value-adding tool to the investment process, and showed that neither the methodologies currently used to build ESG scores, nor the data points used to construct them, are always transparent. Therefore we have built a proprietary score to help us better understand the ESG risks at the country level across our portfolios.

This publication is written by: 
Emanuele Fanelli, Responsible Investment Manager
Jesus Martinez, Portfolio Manager

Emanuele Fanelli

About Emanuele Fanelli

Responsible Investment Manager