Thursday, December 3, 2020, 11:05 AM - 11:20 AM | Commodities Investment Insight: ESG Comes to Town

In recent years, environmental, social and governance (ESG) themes have rapidly risen to prominence within equities and fixed income. In commodities however, this discussion is still in its infancy, with relatively little guidance for investors. To develop an investment framework to incorporate ESG into commodities portfolios, we need to identify the key metrics, understand whether these can be standardised across sectors, and construct investible portfolios that reflect these metrics. Using Bloomberg corporate ESG data and the Bloomberg Industry Classification Standard (BICS), Bloomberg constructs greenhouse gas (GHG) estimates for each metal that is a constituent of the Bloomberg Commodity Index (BCOM) benchmark. The estimation procedure is regression-based and incorporates an error measure for full transparency. As an alternative to a carbon offset-based approach, this uncovers three possible routes by which commodities investors can control ESG in their portfolios.