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NEPC Unveils ESG Ratings to Help Institutional Investors Differentiate Environmental, Social and Governance Approaches

January 23, 2019 / by NEPC

NEPC, LLC, one of the industry’s largest independent, full-service investment consulting firms, today announced a formalized Environment, Social and Governance (ESG) rating system using a combination of qualitative and quantitative measurements to provide an overall ESG integration score. The rating system has been in development over the last year in a joint effort among NEPC’s Impact Investing Committee, its Research Department, and select clients. The system was developed in response to the continued interest across NEPC’s client base to understand how investment firms are approaching ESG integration, as well as key characteristics that differentiate the best approaches in today’s market.

NEPC’s ESG Rankings are determined using a combination of qualitative research, such as one-on-one interviews with investment managers, at both the firm and the product level, and a quantitative rubric system measuring firm and product attributes. The score is calculated by evaluating the ESG commitment, resources and process, producing a scaled outcome from one to five where one is categorized as the best. Unlike other rating metrics, the NEPC process offers flexibility, focusing on the commitment of individual products as well as the overall firm, which can result in different outcomes for products under the same firm. What’s more, the system offers the ability to rate products across different asset classes, allowing investors to gauge them based on their specific use case.

“With an extensive knowledge of the materiality of ESG already present within NEPC, we are excited to unveil a ratings system,” says Mike Manning, Managing Partner at NEPC. “This approach, along with the team dedication of this project, will provide clients with advanced intel, identifying the nuances of ESG integration across asset classes. Ultimately, this will allow clients to have informed discussions about the commitment of ESG integration within their existing portfolios and of future additions to portfolios.”

One of the advantages to this approach is that ratings can be updated on a continual basis, by constantly considering new developments in the industry, and enhancements introduced by investment firms. The scores will ever be evolving by using an exchange of information allowing the same process to be used across asset classes and managers. NEPC believes this method will give clients new tools and resources to help evaluate their portfolios most effectively.

This update comes after extensive research and formalizes, expands and quantifies a process NEPC has honed over the past several years. NEPC has long incorporated ESG information into manager search books, due diligence memos and other materials.

The new rating system launched in 2018 and will roll out in waves across NEPC’s preferred lists.

About NEPC, LLC

NEPC, LLC is an independent, full service investment consulting firm, providing asset allocation, manager search, performance evaluation, and investment policy services. We work with institutional investment programs and private wealth clients on both an advisory and discretionary basis. We service 362 retainer relationships, representing assets of $1.0 trillion1 with approximately $62.0 billion2 in alternative assets, from our offices in Atlanta, Boston, Charlotte, Chicago, Detroit, Las Vegas, Portland and San Francisco.

1 As of 9/30/2018, includes 51 clients with discretionary assets of $17.7 billion.

2 As of 6/30/2018

Topics: Press, Press Release

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