Investment consultant Aon develops ESG rating system for fund managers

Rating system will sit alongside its existing strategy and due diligence ratings

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Aon's Tim Manuel

New York-listed professional services giant Aon has developed an Environmental, Social and Governance (ESG) rating system for buy-rated investment strategies, hoping to bring some order to what it says is a “highly subjective” field.

The system is designed to assess whether and how well investment managers integrate Responsible Investment (RI), and more specifically ESG considerations, into their investment decision-making process.

Aon’s ESG rating system will sit alongside its existing strategy and due diligence ratings and is designed to provide an added dimension to the fund analysis. The ESG ratings are based on a variety of qualitative factors, starting with questionnaire completed by the fund manager, and followed by a review of the managers’ RI related policies and procedures, such as active ownership, proxy voting, etc.

After a thorough review of all materials, data and policies the manager will be awarded an ESG rating using an agreed reference framework. Aon’s ESG assessment process is consistent with the Principles for Responsible Investment’s investment manager reporting framework.

Tim Manuel, head of responsible investment for the UK at Aon, said: “The ESG landscape is both growing and evolving – and navigating it is highly subjective.As yet, there are no widely accepted global standards that define ‘materiality’ for ESG impacts.

“As yet, there are no widely accepted global standards that define ‘materiality’ for ESG impacts.”

“As a result, the assessment of an ESG rating is more about determining whether the manager’s process is credible, robust, consistently applied and repeatable.”

“Great to see consultants formalise their manager ESG assessment framework and have transparency on that,” said My-Linh Ngo, Head of ESG Investment Risk at BlueBay Asset Management on social media.

Formerly with Henderson Global Investors (now Janus Henderson), she chairs the Advisory Committee on Credit Risk and Ratings (the fixed income working group) at the PRI.

In May Aon published an Investor’s Guide to Responsible Investment, with Manuel tweeting that investors are beginning to acknowledge that nonfinancial risks may have a meaningful impact on long-term financial performance.