Analysis on integrating non-rated assets in sustainable portfolio construction

Navigating Non-Rated Assets in Sustainable Portfolio Construction

Building a sustainability portfolio is no longer optional; it’s a business imperative. However, one of the most significant challenges faced by sustainability professionals is effectively managing non-rated assets—those lacking environmental, social, and governance (ESG) ratings from established agencies.

These assets often fall under the radar of conventional ESG frameworks, yet they can hold immense potential for delivering positive impact and financial returns. So, how do we deal with them?

1. Conduct In-Depth Due Diligence

Without ratings, it's essential to dig deeper. Leverage qualitative and quantitative research, focusing on the asset’s core activities, supply chain practices, and governance structures. Emerging AI tools and bespoke ESG scoring models can be pivotal in this process.

2. Engage Directly with Stakeholders

Engage issuers directly to understand their sustainability strategies, policies, and future plans. This builds trust and provides valuable insights often overlooked by external assessments.

3. Collaborate with Specialized ESG Analysts

Partnering with experts familiar with niche sectors or regions ensures you capture material risks and opportunities, even for unconventional investments.

4. Adopt a Proactive Monitoring Approach

Sustainability isn’t static. Establish systems to track ongoing performance, enabling you to respond to changes swiftly.

By integrating non-rated assets thoughtfully, organizations can unlock opportunities in untapped markets while driving transformative impact. Let’s not shy away from the complexity; instead, let’s embrace it as a chance to innovate and lead.

How is your organization tackling the challenge of non-rated assets?

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