Integrating ESG factors - Environment, Social and Governance - into investment decision making supports one of our core beliefs, that helping clients reach their financial goals demands better insights into the long-term sustainability of the companies we invest in. Here’s how we do it.
That’s why we developed a proprietary research model called R.I.I.M., the Responsible Investing Indicator Model. R.I.I.M. builds an environmental social and ethical profile of more than 14,000 corporate entities to enhance our investment teams fundamental research. It uses intel not used in traditional investment analysis, so that we can capture a company’s environmental and social performance. These are data points like environmental fines paid or community protests against a company. We use R.I.I.M. to support ESG integration across a three-step process.
In step 1, we use quantitative data to identify outliers – both positive and negative. This helps our ESG specialists determine where we should focus our deeper research and analysis.
In step 2, companies flagged by R.I.I.M. or our governance screens are further analyzed by our ESG specialists, often in collaboration with our industry analysts.
Then, the actual ESG integration – step 3—takes place. Here, our analysts and portfolio managers consider the ESG research as part of their overall recommendations and portfolio decisions - such as changing financial estimates or modifying positions.
R.I.I.M. allows our portfolio managers to understand if there are concentrated environmental or social factor risks in the overall portfolio. By measuring companies’ environmental, social and ethical profiles (which are often qualitative), they can more easily be used as building blocks of an investment thesis - alongside financial, economic and industry-related insights.
Compared to third-party ESG analysis, we believe R.I.I.M. has some distinct advantages. First, there’s Improved Materiality, as we focus on ESG factors most important to each business model. R.I.I.M. allows for Improved Coverage, beyond third-party data. And lastly, Compatibility with our investment process. As a proprietary model, R.I.I.M. is designed for practical application by our investment team. R.I.I.M. and our ESG Integration process epitomize how T. Rowe Price goes “beyond the numbers” to understand the long-term sustainability of our investments.