Fund ESG Ratings Methodology

Data

Coverage and data

Funds Intelligence covers more than 250,000 mutual funds, including different unit classes, UCITS funds and ETFs. Each fund’s rating is generated from the rating of each holding and the weighted aggregation of those holdings.

Fund holdings

Fund names, fund reference data and each fund’s holdings are updated monthly by a third-party provider, which receives holdings data directly from asset managers. Each holding is identified by its ISIN and matched to the companies and sovereigns we rate. Holdings we cannot match are shown as not covered.

Recalibrated weights

Not every fund discloses all its holdings; some disclose only their largest ten. The “% of holdings disclosed” figure is the share of the fund, by value, that the manager discloses on a timely basis. A fund’s rating is derived from its disclosed holdings, recalibrated as if they made up the full value of the fund. This is shown as the Recalibrated Weight.

Example: a fund discloses holdings making up 80% of its value. A holding disclosed at 4% of the fund has a recalibrated weight of 4% ÷ 0.8 = 5%.

How the holdings are rated

Update frequency

• Fund holdings: refreshed monthly
• Company data: updated within 10 days of a relevant company disclosure, so fund results move as the companies they hold report
• Live ESG Sentiment: updated every 15 minutes

Scores

How fund scores are calculated

A fund score is built from its holdings’ scores on the same 0 to 4 scale as a company score, then converted into a grade using bands set for funds.

Weighted average of holdings

A fund’s ESG score is the average of its holdings’ company and sovereign ESG scores, weighted by recalibrated weight. Sustainability, Governance, Impact and Consensus scores are calculated in the same way, each from the holdings that have a score for that measure. By default, a holding that makes up 10% of a fund contributes twice as much to the fund’s score as a holding that makes up 5%. Switching off Use Weighted Calculations gives every scored holding equal influence, whatever its size.

Coverage figures

Only holdings with an available score are included, and their weights are rescaled to add up to 100%. Three figures show what each fund result rests on:

Proxy scores

Where a company discloses too little for a score to be based on its own data, we use a proxy score based on the average scores of companies in the same subsector and region, as set out in our Proxy ESG Scores Methodology. A fund’s own score always includes proxy scores for the holdings that need them, and the % Shown Using Proxies figure shows how much of the grade rests on peer-group scores.

Short positions

Where a fund holds a short position in a company, that company’s score is inverted for the purposes of the fund score: it counts as 4 minus its company score. The absolute size of the short position is used as its weight. A short position in a weakly scored company therefore raises the fund’s score.

Grades

From scores to grades

Scores are converted into grades from A to E using standard deviation bands around 2, the midpoint of the 0 to 4 scale. Funds use bands half as wide as the company bands, centred on the same midpoint.

Averaging many holdings brings fund scores closer together, so narrower bands keep funds distinguishable from one another. Fund grades and company grades therefore sit on different scales: a fund graded B and a company graded B are not directly comparable. Grades are derived from the combined 0 to 4 score, not averaged from the holdings’ letter grades, so a fund can receive an A even when most of its holdings are graded B.

Profiles

Results are shown through the profile selected at the top of the page, which holds the user’s exclusions and any customisation of the scoring. The Uncustomised profile follows the default methodology on this page.

Portfolios

Funds held in portfolios

Funds can be held in uploaded portfolios alongside companies and sovereign bonds, each identified by its ISIN. Each fund appears as one row, with its coverage and grades calculated as above, and opens to its own Fund Overview page.

Looking through to the underlying holdings

Switching on See Underlying Holdings replaces each fund in a portfolio with its single-name holdings. Investments in every single name are aggregated across funds, so the portfolio’s total exposure to each company is shown.

Example: Company A makes up 20% of Fund X, and Fund X makes up 10% of the portfolio. Company A’s look-through weight in the portfolio is 20% × 10% = 2%.

Look-through also works the other way, from a company to the funds that hold it. Our analysis of fund exposure to SpaceX after its IPO shows it in practice.

Portfolio scores follow the same method as fund scores, with one difference: a portfolio score includes proxy scores only when Include proxy scores is switched on in the portfolio header.

Fund Overview

The Fund Overview page

Every fund has a Fund Overview page, opened by searching for the fund from any page of the Integrum ESG Platform. The header gives the number of holdings, the coverage figures, the % of holdings disclosed, the Use Weighted Calculations switch and the fund’s headline grades. Below it, a set of tabs lists the fund’s holdings, each opening to its company page.

ESG Overview

For each holding, the ESG Overview shows its weight and recalibrated weight, whether it is covered directly or by proxy, its ESG, Sustainability, Governance, Impact and Consensus grades, the SFDR Article it is compatible with, its EU Taxonomy alignment and whether it is involved in any activity covered by our exclusion categories or by the exclusions in the user’s profile. Supplementary data adds each fund’s category, segment, asset class and the SFDR Article it reports.

Comparing SFDR Article Compatibility, our assessment of the holdings, with SFDR Article (Reported) shows where the holdings support the Article a fund reports and where they differ.

Footprint

A fund’s carbon footprint is the sum of its holdings’ contributions: each company’s Scope 1 and 2 emissions per $1M of enterprise value, multiplied by its weight in the fund. Market capitalisation can be used in place of enterprise value. Two totals are shown: the total disclosed carbon footprint, from holdings that disclose, and the total carbon footprint, which grosses that figure up for the share of holdings that do not.

Example: a fund’s disclosing holdings give a total disclosed carbon footprint of 50.0 tCO2e per $1M, and 4% of its holdings do not disclose. Its total carbon footprint is 50.0 ÷ (1 − 0.04) = 52.1 tCO2e per $1M. Our Portfolio Footprint Calculator Methodology covers the waste, water, tax and employment footprints, which are calculated in the same way.

Global Warming Impact

The Global Warming Impact tab shows the fund’s Implied Temperature Rise in degrees Celsius, the warming that would follow if every company behaved in the same way as the fund’s holdings, and whether that is Paris aligned, as set out in our Temperature Score and Implied Temperature Rise Methodology. It also shows each holding’s own Implied Temperature Rise and weighted average carbon intensity: each holding’s emissions per $1M of revenue multiplied by its weight.

Regulatory

The SFDR sub-tab gives the SFDR Article the holdings are compatible with and a colour for each holding on each PAI indicator. The EU Taxonomy sub-tab gives the share of the fund’s holdings assessed as aligned with the EU Taxonomy and a colour for each holding’s overall alignment, the six environmental objectives and minimum safeguards.

Revenue Data

The Controversial Activities sub-tab shows the share of each holding’s revenue from controversial activities, with its primary and secondary exposure categories, filtered across any of the 60 categories in our Controversial Activities Methodology. A figure shown with “>” includes companies involved in an activity whose exact revenue from it is not reported, so the true share is greater than the figure shown. The Activity Aligned to UN SDGs sub-tab shows the share of each holding’s revenue from activities aligned to the UN Sustainable Development Goals, as set out in our SDG Revenue Alignment Methodology.

Outputs

Exports, tearsheets and TCFD reports

Export to Excel

Every Fund Overview page exports the fund’s data to Excel, holding by holding, with the overall fund on the first row.

Tearsheets

A tearsheet is a PDF summary of the fund. Before generating it, the user chooses a benchmark (Global, UK, USA, Europe, Global Smaller Cap or UK Smaller Cap), the total portfolio value, the valuation basis for the carbon footprint and the type of tearsheet. Each benchmark contains every company we cover directly in that category, weighted by enterprise value, in the same way as a market-capitalisation-weighted index.

The Impact tearsheet shows the fund’s Impact and ESG grades, its footprints, its Implied Temperature Rise and its alignment with each UN Sustainable Development Goal: the weighted average of the holdings’ scores on the Impact metric mapped to that goal. SDG 12, Responsible Consumption and Production, for example, uses Resource Security scores. Tearsheets and exports work in the same way from a Portfolio Overview page, with any fund looked through to its holdings first.

TCFD reports for portfolios of funds

For a portfolio made up of funds, such as a fund of funds, a TCFD workbook sets out Scope 1, 2 and 3 emissions, weighted average carbon intensity, carbon footprint and Climate VaR under three carbon price scenarios, with a summary for the portfolio and a row for each fund, each looked through to its holdings. For each fund it also shows data coverage.

Example: a fund discloses 90% of its holdings and we cover 80% of those, so data is available for 90% × 80% = 72% of the fund. Our TCFD Reporting and Climate VaR Methodology sets out each calculation.

Verification

Checking a fund result

Every fund grade can be followed back to the evidence behind it in four steps.

1. Check what the result rests on Read % Directly Covered, % Shown Using Proxies and % Not Covered alongside the grade, and % of holdings disclosed to see how complete the published holdings are.
2. Find the holdings that matter Sort the ESG Overview by Recalibrated Weight to see the largest holdings, or by a grade to see the weakest.
3. See the evidence Open any company page. Every score has a Glass Box view, with a summary of why the company has that score and the excerpt from its report behind it, as set out in our Company ESG Scores and Glass Box Methodology.
4. Tell us if something looks wrong Email contact@integrumesg.com with the fund’s ISIN and the holding or figure concerned if a holding appears to be matched to the wrong company or a fund’s holdings look out of date.

Related methodologies

• Integrum ESG Core Methodologies
• Integrum ESG Scoring Framework
• Company ESG Scores and Glass Box Methodology
• Consensus ESG Score Methodology
• Controversial Activities Methodology
• ESG Controversies and Sentiment Methodology
• Private Markets ESG Data Capture Methodology
• EDCI Data Collection and Reporting Methodology
• SFDR Classification and PAI Methodology
• EU Sustainable Investment Audit Methodology
• EU Taxonomy Alignment Methodology
• TCFD Reporting and Climate VaR Methodology
• Portfolio Footprint Calculator Methodology
• Golden Retriever Data Extraction Methodology
• Heatstrips and Peer Benchmarking Methodology
• Proxy ESG Scores Methodology
• ESG Screening Methodology
• SDG Impact from Operations Methodology
• Sovereign ESG Scores Methodology
• Temperature Score and Implied Temperature Rise Methodology
• SDG Revenue Alignment Methodology