Implementing a sustainable and responsible approach in an investment strategy means taking into account environmental, social and governance (ESG) criteria, as well as the global challenges of climate change into the investment strategy.
RESPONSE TO THE NEW ASIP AND SWISS CLIMATE SCORES RECOMMENDATIONS.
In response to the new ASIP and AMAS recommendations and the resulting reporting needs of pension funds and institutional investors, Ethos will soon offer a new service that meets the new ESG reporting requirements of ASIP and the Swiss Climate Score.
ETHOS CLIMATE TRANSITION RATINGS
Ethos launches a new methodology, assessed by UNIL and EPFL, which analyses climate risks and the alignment of an investment portfolio with a scenario of a 1.5°C global temperature increase. The "Ethos Climate Transition Ratings" are thus composed of a climate risk rating and a temperature score.
Ethos has also recently added a positive impact methodology to its ESG analysis in order to identify companies that have a positive impact on the environment and/or society and contribute to the transition towards a more sustainable economy. The concept of positive impact allows for greater consideration and measurement of the sustainability and climate orientation of investments.
Ethos offers over 2’000 ESG analyses and ratings of listed companies and issuers. The analysis universe includes companies listed in Switzerland that are included in the Swiss Performance Index, all public companies in the MSCI World ex CH and MSCI EM (250), as well as issuers in the Swiss Bond Index AAA-BBB.
The environmental and social analysis covers topics such as environmental strategy, product sustainability, human rights, employees and suppliers, and the companies' relations with civil society. The corporate governance analysis covers topics such as transparency, capital structure, composition and functioning of the board of directors, remuneration system, shareholder rights and business ethics.
ESG ratings are determined by comparing the practices of companies from the same sector. The quantitative analysis is completed by a qualitative analysis of the company's products and its exposure to serious or significant controversies. Ethos also assesses whether a company should not be excluded from a sustainable portfolio either because it generates a significant part of its turnover in a sensitive sector or because it is involved in a serious controversy.
In addition to the traditional ratings, Ethos has introduced a Carbon Rating to assess the relative intensity of a company's greenhouse gas (GHG) emissions (direct and indirect) and climate strategy. This rating makes it possible to prioritise investments in companies that emit the least GHG emissions or have implemented credible strategies to reduce their emissions.
PORTFOLIO AND FUND SCREENING
Ethos offers its clients a sustainability analysis of their portfolio. This analysis determines the sustainability profile of the companies invested in, their exposure to controversies, their positive impact on the environment and society, as well as their exposure to the challenges of climate change.
Ethos conducts screenings of existing portfolios based on environmental, social and corporate governance (ESG) criteria. Ethos establishes a detailed report providing a consolidated overview of the portfolio as well as in-depth analyses by region and asset class. The report is completed with an analysis of the portfolio’s exposition to sectorial exclusions, major controversies or GHG emissions. ESG ratings of listed companies and fund analysis are also included in this service.
Ethos also performs sustainability analyses in relation to funds and issues a sustainability factsheet for each fund. The spread of ESG ratings as well as extra-financial performances is compared to the fund’s benchmark. The factsheet also highlights the fund’s exposition to ESG controversies as well as to sensitive sectors or companies in which the fund is invested.
CLIMATE ANALYSIS AND REPORTING
Ethos Climate Transition Ratings
In order to measure companies' progress and readiness to implement a credible energy transition, Ethos completely revised its 2023 methodology to better assess companies' climate risks and the alignment of their activities with the objectives of the Paris Agreement. This assessment, called "Ethos Climate Transition Ratings", focuses on companies' climate strategy and provides a thorough analysis of their climate performance.
The Ethos Climate Transition Ratings focus on the commitments, but also on the measures implemented and the results achieved by companies to reduce their GHG emissions. Each company is assigned a temperature, i.e. the temperature that would be reached at the global level in 2100 if the entire economy were to adopt the same strategy. Past GHG emissions and self-imposed reduction targets taken into account, as well as the credibility of the company's climate strategy.
This new methodology should also enable institutional investors to accurately measure the climate impact of their investments and thus comply with the new reporting requirements, such as the "Swiss Climate Scores" or the ASIP recommendations on ESG reporting.
Ethos has also developed a methodology to assess the positive impact of companies on the environment and/or society and their contribution to the transition towards a more sustainable economy.
This methodology makes it possible to quantify the proportion of a company's turnover, and therefore of a portfolio, that can be considered as having a positive impact from a social and/or environmental point of view. This makes it easier for Ethos and its clients to prioritise investments in these companies and sectors.
Ethos has classified the activities that play a key role in the transition towards a more sustainable society into ten different thematic areas. To be included in Ethos' positive impact classification, these activities must contribute to the foundation of a fair and just society and must not exceed planetary carrying capacity limits. The principles of sobriety and harmlessness (i.e. that an activity that makes a positive contribution to one aspect of the transition must not significantly affect other environmental and social aspects), as well as life cycle analysis of products and services are also key criteria of the methodology.
By setting strict criteria for the ten thematic areas, Ethos’ positive impact methodology also aims to provide a credible framework for environmental and social reporting, as more and more companies self-declare part of their activities as positive, especially in relation to the climate.