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This article provides high level insights into Sustainability Integration practices from the analysis of Albourne’s Sustainability Integration Scores (“SiQ Scores”) [1] for 1,002 funds across several Hedge Fund and Private Market strategies.
OVERVIEW
The Albourne SiQ Score seeks to measure the degree of Sustainability Integration in a fund (as reported by the fund manager). Albourne defines Sustainability Integration as the incorporation of financially material sustainability risk considerations into the investment decision making and risk management of a Fund’s investment strategy. Albourne’s SiQ Scoring framework was launched in April 2021.
The scoring framework covers three areas: policy and governance, reporting and investment process & monitoring. According to Emlyn Palmer, Head of Sustainable Investing and Partner at Albourne: “Incorporating the SiQ Scoring framework for Sustainability Integration helps encourage managers to not only meet minimum acceptable standards, but to raise industry standards overall.”
SCORING METHODOLOGY
- The SiQ Score is fund-specific and ranges from 0 – 100 (low to high). It is automatically calculated from a fund manager’s (“manager’s”) responses to a proprietary Short Form Questionnaire (“SFQ”) which forms part of the Albourne Sustainability Integration Questionnaire (“SiQ”). The SiQ also includes the PRI Association’s Asset-Owner’s DDQ which must be completed and submitted along with the SFQ for an SiQ Score to be registered.
- The SFQ’s 15 questions test the fund’s programme for features that Albourne considers to be core elements of sound Sustainability Integration. The questions in the SFQ are closed ended and presented with no default responses; managers or their representatives must select responses which most closely describe the fund. The responses then drive the SiQ Score based on a proprietary scoring matrix. The SFQ also serves as a survey tool which allows Albourne to collect data from managers about their Sustainability Integration practices in relation to a fund.
KEY FINDINGS
- On average Private Markets funds’ SiQ Scores were higher than the average Hedge Fund score: The mean score for Private Market funds was 68 versus 51 for Hedge Funds. The median scores for Private Markets and Hedge Funds were 74 versus 56.
- Dispersion however was high across and within Hedge Fund strategies whereas Private Market strategies were more tightly clustered around higher averages: Hedge Funds were scattered throughout the full range of SiQ Scores of 0 – 100, with an interquartile range of 60 defined by upper and lower boundaries of 80 and 20 respectively, and a median of 51. In contrast, PM funds clustered much more tightly around their median SiQ Score of 74, with an interquartile range of 28 defined by upper and lower boundaries of 85 and 57 respectively, and a median of 68. This excluded a few outliers in the lower ranges.
- Investment Process and Monitoring is a key driver of SiQ Scores: High scores by PM funds are underpinned by high integration in investment process & monitoring whereas wide variations across different HF strategies are largely explained by variation in that area.
[1] “SiQ” denotes Albourne’s Sustainability Integration Questionnaire which is the broader survey instrument that forms the basis of the SiQ Score. SiQ Scores are only available to clients of Albourne.
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