Rating Methodology
ESG Fund Rating
What does the ESG Fund Rating measure?
The ESG Rating measures the ability of underyling fund holdings to manage key medium to long-term risks and opportunities arising from environmental, social and governance factors. It aims to provide fund‐level transparency to help investors better understand and measure the ESG characteristics of the total portfolio, and rank or screen funds based on a diverse set of ESG exposure categories.
What are the features of the ESG Fund Rating and how is it calculated?
yourSRI uses data from MSCI ESG Research, a leading provider of ESG ratings and research, to produce the rating at fund level. We leverage our partner’s rating and research coverage of over 7’000 companies (11’000 total issuers including subsidiaries) and more than 350’000 equity and fixed income securities to create ESG scores and metrics for approximately 27’000 multi‐asset class Mutual Funds and ETFs globally, representing about 97% of the AuM of all funds registered for sale in the major European markets.
The rating process of a fund is a two-step process: First, each fund in the coverage universe will receive an overall Fund ESG Quality Score and Rating (0‐10, respectively CCC-AAA) as well as an Environmental, Social and Governance score (0‐10). The overall Fund ESG Quality Score aggregates issuer‐level ESG scores to provide investors with an indication of the overall ESG quality of a fund’s underlying holdings.
As a second step, a Percentile Rank is being calculated using each fund’s overall ESG Score. This relative rank measures how a fund’s score ranks relative to other funds in the same peer group. The percentile figure represents the percentage of funds in a fund’s peer group with an ESG Score at, or lower than, the fund’s ESG Score and is illustrated by the yourSRI ESG Diamonds. To provide a high confidence assessment in a fund's overall ESG score, we require 60% or more coverage of the fund's underlying holdings. Fund Peer groups are based on the Lipper Global Classification. A global percentile rank (covering all funds in the yourSRI universe) is also available for reference.
Climate Fund Rating
What does the Climate Fund Rating measure?
The Climate Fund Rating offers investors a simple means to understand their exposure to long-term climate risks and integrate climate impact into their investment decisions. It is the first rating that provides a holistic assessment of a fund’s climate-related risks and opportunities
What are the features of the Climate Fund Rating and how is it calculated?
yourSRI uses the Climetrics rating and methodology to assess the climate impact of investment funds. Climetrics was developed by two recognized climate specialists: not-for-profit CDP (formerly Carbon Disclosure Project) and ISS-Ethix Climate Solutions, part of the responsible investment arm of Institutional Shareholder Services Inc.
Climetrics’ scoring system is based on three parts: a fund's portfolio holdings, its investment policy, and the asset manager's governance. This is to assess each fund’s entire investment process. It goes beyond a snapshot analysis by scoring funds over a 12-month period:
The Portfolio Holdings Score reflects the climate impact of companies held by the fund over time. Using CDP data, it goes far beyond a carbon foot print measurement. Investee companies are analysed holistically using future-looking metrics. This includes their climate disclosure, management practices such as long-term target-setting, as well as their exposure to green and brown energy technologies.
The Asset Manager Score assesses a manager’s level of public action on climate change. Climetrics looks at public information across five distinct categories, such as climate change disclosure and collective engagement.
The Investment Policy Score rewards funds with an explicit ESG policy and those carrying a European SRI label.
Based on this, an overall climate score is being calculated for each fund, which is then compared to all funds in coverage (global percentile ranking). The final rating is represented by a 1-5 leaf rating, with a 5-leaf rating the best available. To receive a Climetrics rating, at least 60% of a fund’s assets under management must be assessed with company specific metrics. 5-leaf rated funds must adhere to strict threshold criteria.
Compared to the total universe, highly-rated funds generally have a much higher allocation to carbon-efficient companies and invest in firms with better climate management performance. Equally, their direct fossil fuel exposure will be much lower. The asset manager will demonstrate stronger public action on integrating climate change into its governance and investment processes. 5-leaf funds are better aligned with a low-carbon economy and less exposed to future carbon risks.