Sustainable Investment Strategies Processing

This Description function is used to mark the start of processing sustainable investing strategies.

If contains the following function:

Apply Sustainable Investing Strategies

This Join function uses the Calculate TCFD Metrics function as input and enriches the results via a Lookup rule to extract the portfolio credit rating and ESG rating from the Credit and ESG Scorecards function. This Join function then combines the Sustainable Investing Strategies table with the enriched Evaluate Impacts and Scores function under the restriction that the score upper (lower) limit is greater than (smaller than or equal to) the rating score, and the rating and green flag are matched. Next, the system attaches loan data, the Calculate Potential Carbon Emission function result and Climate Scenario Analysis Data to the forementioned rules, and calculates the following indicators:

  • Weighted sum of the business activity attribute value

  • Weighted fossil fuel exposure

  • Weighted potential carbon emission

  • Weighted climate hazard exposure

  • Weighted physical risk shock, transition risk shock and Climate Value at Risk

In the end, the Calculate Portfolio Level PAI Indicators function is attached to incorporate portfolio-level SFDR PAI assessment results.

In the output, the investment strategy will be presented for each instrument based on its valuation rating and ESG rating.

The following strategies will be put forward:

  • Stable Holding Strategy keeps the weight of instrument unchanged.

  • Avoid Low Return and Weak ESG strategy is expected if the instrument has a low valuation score as well as a low ESG score. Investors are suggested to remove the instrument from their portfolios.

  • Engage High Return and Weak ESG strategy is expected if the instrument has a high valuation score, but a low ESG score. Investors can actively engage the company to improve sustainable business practices.

  • Invest High Return and Strong ESG strategy is expected if the instrument has a high valuation score as well as a high ESG score. Investors are suggested to increase the holding of the instrument.

  • Reduce Low Return and Strong ESG strategy is expected if the instrument has a low valuation score, but a high ESG score. Investors are suggested to reduce the holding of the instrument.