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Putting Sustainability on the Investing Map


A map does not simply chart territory. It provides context, revealing connections we might otherwise have missed. It allows us to visually link ideas that were previously disconnected. It helps guide how we make decisions.

 

The SASB Materiality Map™ is no exception. This week we unveiled a more user-friendly interface for this interactive, Bloomberg-powered visual tool, which helps users identify SASB disclosure topics on an industry-by-industry basis and compare the potential materiality of various sustainability issues across different industries and sectors.

 

This information is useful, because the potential impacts of sustainability issues can vary from one industry to the next. Although a broader issue like climate change can cut across nearly every industry, exactly how it manifests itself in each one can be fairly unique.

 

For example, while direct greenhouse gas emissions are likely to be a material concern for companies in the Non-Renewable Resources sector, they’re largely irrelevant to Financials sector firms (which instead deal with financed emissions). Meanwhile, even within the Technology & Communications sector, the issue of water and wastewater management can be related to manufacturing in the Semiconductors industry or related to the environmental footprint of hardware infrastructure in the Internet Media and Services industry.

 

Everyone knows diversification is the golden rule of investment strategy. However, most equity allocations within portfolios are diversified on the basis of such factors as market capitalization (small, medium, large), valuation (value, growth, blend), and geography (domestic, foreign).

 

Although those frameworks can be valuable, there is mounting evidence that a sector-based approach to asset allocation can lead to more manageable portfolio risk and greater diversification benefits over the long run. As it turns out, sectors make strong “building blocks” for portfolio construction because:

 

  • Companies and industries within a sector share stable classification and consistent performance drivers while exhibiting high return dispersion.
  • Sectors tend to display clear volatility patterns and low performance correlation relative to one another.

The former explains why diversification across sectors is important; the latter explains why this approach can be more manageable and effective.

 

Of course, the SASB Materiality Map™ is not intended as a stand-alone investing strategy, nor do its contents represent recommendations to investors regarding any particular course of action. Nevertheless, the Materiality Map™ provides a useful tool for investors and intermediaries to analyze portfolio exposure to specific sustainability risks and opportunities, and to inform their investment decision-making process.

 

The SASB Materiality Map™ is now available for 27 industries in the four sectors—Health Care, Financials, Technology & Communications, and Non-Renewable Resources—for which SASB has released provisional standards. New sectors will be added as standards are finalized. When completed, the SASB Materiality Map™ will show sustainability profiles for each of the 80+ industries within SICS.