Taking stock: ESG & Constructive Ownership in 2022

After 5 years teaching in Asia where I was heavily involved in education development solutions in emerging Asia, I joined Arisaig as an Investment Analyst in 2010, fresh out of business school at INSEAD.

Joining an investment firm that had long holding periods (10 years plus), long standing client relationships (10 years plus) to build out a governance-oriented investment process to include environmental and social considerations was pushing on an open door.

Every year since I joined, Arisaig has published our ESG report and shared it with our clients and the wider markets to show how much, or at times, how little we had achieved during the year. We have just released our 2022 report, which is available in full here.

I’m proud to say that ESG integration within the team during my first year meant that our progress and reporting has generally improved over time. Today 100% of our holdings are assessed annually across detailed sustainability and governance criteria by our investment team.

Given that we are proudly bottom-up investors, the fact that we actively engaged with 82% of our AUM during the year is an important number. 10% of analyst time is spend on engagement and so this is important bang for our buck.

Notable achievements in 2022 included a detailed engagement with an online B2B classifieds business that connects manufacturers and buyers in India. When we first assessed this newly listed company back in 2020, we were excited by the purposeful nature of this company’s business, but the company published very little information on non-financial factors and nothing on climate change.

To improve our conviction in the company, we wanted to see significant behaviour change, including improved climate change management capacity (specifically to meet TPI level 2 by 2023), monitor and disclosure the impact of the company on SMEs, and enhanced regular public reporting on ESG matters.

In 2022, the company’s annual report included a dedicated ESG section for the first time. In addition to publishing scope 1 and 2 emissions alongside other environmental metrics, the company included statistics and case studies to evidence the impact it was having on supporting SMEs. There were also sections on other material ESG issues, including diversity and data security.

Despite individual stock level victories such as this one, 2022 has been a disappointing year when it comes to our climate change targets.

On the face of it, things look fine given that Arisaig portfolios are structurally of much lower carbon intensity versus the Index and reduced 8% versus 2021.

Source: S&P Trucost, Arisaig analysis[1]

Being ‘better than not very good’ is not the right way to measure success. Looking at financed emissions (scope 1 and 2) across our portfolios, there has been an increase of around 8% compared to 2021. The graph below puts in glorious technicolor the fact that we are now at a level that is 1% higher than our 2019 baseline, and that our financed emissions are c. 6% higher than our net zero target pathway. In short, we are a long way from where we should be today.

Source: S&P Trucost, Arisaig analysis[2]

Attribution analysis shows that the increase is due to higher company emissions rather than changes to the portfolios’ holdings. Further analysis shows that most of the increase can be attributed to increase in reported emissions of a single company. This company reported scope 2 emissions for the first time in 2022, making it difficult to know whether there was truly an increase in emissions or simply that estimated data used in previous years were inaccurate.

This demonstrates the importance of having reliable emissions data and our emphasis on pushing companies to TPI Level 2 (which includes reporting scope 1 and 2 emissions). For 2022, 49% of the financed emissions were based on estimated GHG data, which is an improvement from the previous year (58% estimated) but still very high. This points to the fact that as disclosure increases and accuracy improves it could be a rocky old ride when it comes to keeping on track.

We also have a long way to go in terms of getting our portfolios of emerging market businesses aligned to net zero. We define a company to be net zero ‘aligned’ or ‘aligning’ according to maturity scale defined in the IIGCC’s Net Zero Investment Framework Implementation Guide as shown below.


Source: IIGCC, Net Zero Investment Framework Implementation Guide

Based on our assessment, at the end of 2022 about 6% of our portfolio is current aligned or aligning. A couple other companies are in the process of preparing material scope 3 reduction targets, which would make them also net zero aligning.

Source: Arisaig analysis based on company disclosures (e.g. annual and sustainability reports)

Whilst we can take heart from individual engagement successes eliciting improved disclosure and get some top-down assistance in 2023 in India, when climate change disclosure becomes mandatory for the top 1,000 listed business, it is clear that hitting our climate change targets is going to be extremely hard going. They say that something worthwhile isn’t meant to be easy and so we will be leaning into this in 2023. It is also important for us as a firm that we are as transparent about where we are falling short, perhaps even more so than when we are ‘hitting it out of the park’. Over the last 26 years we have found this is the best way to build long standing relationships with both our clients and our holdings.

Rebecca Lewis, Co-CEO, Arisaig Partners


[1] Firm-level weighted average carbon intensity achieved by calculating the carbon intensity (equity weighted average Direct and First-tier Indirect emissions, including scope 1, 2 and other first-tier upstream scope 3 / USDm in revenue) for each portfolio company and calculating the weighed average by pooled portfolio weight. Carbon intensity data is based on latest figures available from S&P Trucost Limited as of 18 Jan 2023. Carbon intensity for Arisaig portfolios are based on firm-wide holdings as of 31 December each year. MSCI EM carbon intensity based on iShares MSCI Emerging Markets ETF constituents as of 31 October 2022.

[2] Financed emissions calculated in line with PCAF (2022) The Global GHG Accounting and Reporting Standard Part A: Financed Emissions Second Edition (the PCAF Standard). In previous years, we reported financed emissions on a ‘normalised’ basis to account for changes in AUM. In line with PCAF requirements, going forward we will report unadjusted absolute financed emissions. Emissions removals and carbon credits not included. Scope 3 to be reported from 2025 onwards, in line with PCAF Standard. Based on reported emissions available from S&P Trucost Limited as of 18 Jan 2023. Based on holdings as of 31 December of each year.


This material is being furnished for general informational and/or promotional purposes to professional investors only. The views expressed are those of Arisaig Partners and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact, nor should any reliance be placed on them when making investment decisions. This material does not constitute independent research and is not subject to the protections afforded to independent research.

The statements and views expressed herein are subject to change and may not express current views. Arisaig Partners makes no representation or warranty, express or implied, regarding the accuracy of the assumptions, future financial performance or events. Emerging markets are generally more sensitive to economic and political conditions than developed markets and may be more volatile and less liquid than other investments.

All information is sourced from Arisaig Partners and is current unless otherwise stated. Issued by Arisaig Partners (Asia) Pte. Ltd. Not for public use or distribution. Arisaig Partners (Asia) Pte. Ltd is licensed and regulated by the Monetary Authority of Singapore.

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