Sustainability has evolved from a buzzword to an important factor in the world of finance. Increasing numbers of investors wish to invest their capital in a manner that not only generates profits, but that is also responsible (Good reasons for more sustainability in investment funds). People who want to invest specifically in sustainable companies require valid information about the relevant activities of the companies. Here, we would like to explain:

• how we arrive at the Raiffeisen ESG Indicator, which is our yardstick for sustainability in companies and investment funds (ESG: three letters, one sustainability approach).

• where we obtain the data on which our sustainability analyses and assessments are based.

Sustainability analyses from reputable rating agencies

Several rating agencies have developed a good reputation for regularly checking the sustainability of companies, making the data manageable through indicators, and in this way providing transparent sustainability ratings. These include EcoVadis, ISS ESG, inrate, MSCI ESG and Sustainalytics. Their analyses form an important basis for Raiffeisen KAG to create our own assessments. The rating agencies evaluate from two perspectives. We describe this process in a heavily summarised manner as follows:

• Outside-in: The focus is on the question: How do climate change and other environmental or social developments affect the business success of companies? It is assessed whether sustainable developments represent a risk to business operations, and how this is handled by the particular company.

• Inside-out: The main question here is: How do the activities of companies affect the environment and the future of society? It is assessed what contributions the companies make towards sustainable development in general.

Sources of information: Rating agencies often request the required information for their evaluations directly from the relevant companies. As the importance of sustainability ratings has increased over the past few years, the willingness to supply this data voluntarily has also increased. However, rating agencies also make use of alternative sources of information, such as state agencies or non-profit organisations and external suppliers of data.

Different methods: There is an international quality standard for sustainability rating agencies – the Responsible Investment Research Standard, ARISTA®. This provides relevant guidelines and general rules as to transparency, quality, and verifiability of the sustainability analyses. However, every rating agency has developed their own method with regard to the approach, the criteria used, and their weighting. These methods do, of course, differ from one agency to the next. Raiffeisen KAG has developed its own methodology to deal with such questions in a systematic, consistent, and always verifiable manner. It is constantly adapted and developed further.

Own analyses: data from the Raiffeisen network

The data sourced from rating agencies only forms the basis for our sustainability analyses. Raiffeisen KAG gathers other facts by means of so-called primary and secondary research. For this, we make use of information from our own Raiffeisen network. Two methods that are essential for our own analyses:

• Corporate dialogue: Communicating with companies is an important means of obtaining information in the area of sustainability. Raiffeisen KAG comes into direct and indirect contact with businesses (e.g. by visiting companies, during group meetings, at conferences, or during conference calls) in order to obtain a precise picture not only of their financial situation, but also of the sustainability aspects of each particular company. This dialogue is often initiated on the basis of relevant current topics such as electromobility, palm oil, and microplastic. In such cases, Raiffeisen KAG takes a thematic approach to several companies from the same sector so as to be able to compare the results.

• Impact research: In order to verify how relevant the 17 Sustainable Development Goals (SDGs) of the United Nations are for the companies in our funds and what contribution the companies make towards achieving these goals, Raiffeisen KAG carries out so-called impact research on an annual basis. To this end, a special questionnaire is drawn up and forwarded to companies in our funds. In 2020, for instance, the questionnaire was sent out to 124 companies.

Our yardstick: the Raiffeisen ESG Indicator

We calculate the Raiffeisen ESG Indicator – our yardstick to measure the sustainability performance of a company – by making use of selected, high-quality sources. Raiffeisen Kapitalanlage-Gesellschaft m.b.H. continually analyses companies and countries with the help of internal and external research providers. Together with an overall ESG assessment including an ESG risk assessment, the results of the sustainability research are converted into the so-called Raiffeisen ESG Indicator. The Raiffeisen ESG Indicator is based on a scale of 0 to 100. The assessment is made in consideration of each company’s respective branch of business.

Sustainability: the selection process in numbers

We would like to describe the different stages of the selection process in numbers using our fund Raiffeisen-Nachhaltigkeit-EmergingMarkets-Aktien as an example:

• There are around 1,000 sustainability analyses for equities from Emerging Markets (Sustainable investment in Emerging Markets).

• Around 200 of these are excluded from the selection process for not meeting our negative criteria (e.g. the arms industry, nuclear power, child labour, and corruption).

• Another 300 companies were not included as a result of our detailed sustainability analyses.

• Some 70 to 90 companies were selected from the remaining 500 or so equities. These were found to be the most suitable for the portfolio. During this process, the fund management is required to document clearly why a particular company has earned its place in the fund from an ESG point of view.

The Raiffeisen-Nachhaltigkeit-EmergingMarkets-Aktien exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.