ThemeX quantifies companies’ exposures to key sustainability themes, such as Climate Change or Health & Wellness. It allows us to quantify and compare portfolios’ exposures to key themes, as well as helping identify exposed companies.
It is grounded in systematic analysis of hundreds of trends (eg Offshore wind power) which are matched to themes (eg Climate change). Users can strengthen the analysis by adding their insights, through new or to existing trends.
This page summarises the main elements of the approach. For further information please see the more detailed technical specifications here.
In contrast to most third party approaches, ThemeX is based on the principle that every company is either positively or negatively exposed to every structural theme to some extent, and that indirect exposures can be powerful drivers, if less obvious.
Each of the five themes we have focused on is represented by dozens of trends. Those trends provide a way to dissect broad and imprecise themes into discrete changes that can be linked to specific industry segments. For example, Offshore wind energy, Electric car use and Alternative protein consumption are all trends within the Climate change theme. Each trend is researched and its size, growth and the industry segments it affects are documented. Analysts can easily add new trends or edit existing trends.
That trend analysis is used to quantify the extent to which every industrial market is positively or negatively exposed to each theme. We have used FactSet’s hierarchy of industrial markets, comprising over 7,000 individual markets, to which the sales of over 40,000 companies are assigned. That mapping provides a consistent, objective and comprehensive basis to examine every company’s exposure. Trends are translated to industry market exposures systematically, based on both direct and indirect impacts:
- Direct: Where an industrial market is directly affected by a trend, for example the “Wind energy equipment” market is directly affected by the “Onshore wind energy” trend
- Indirect: Those directly affected markets will create ripple impacts on other markets in the same value chain. For example, growth in wind energy equipment will lead to increased steel demand, all else being equal, to construct those turbines. We have used input-output table analysis to quantify those indirect effects
Those direct and indirect impacts are combined so that each of the 7,000 industry segments exposures to each theme are quantified. By combining those segment exposures with companies’ revenues from each segment, we measure every company’s weighted exposure to each theme.
Those company scores are then adjusted to reflect differences in geographic footprints and companies’ product portfolios:
Geographic effect: Reflects the degree of need in the countries into which the company sells, combining geographic revenues with the progress each country has made in each thematic field. For example, Indonesia has more need for sustainable infrastructure investment than France and the growth potential is commensurately higher.
Company specific effect: Set to one in most cases, this adjusts the scores for each company to reflect differences in the alignment of their products to each theme. For example, Danone’s products are typically healthier than Nestle’s, in the same categories.
The combination of these factors yields an assessment of every company’s exposure to each theme. That analysis can be combined to gauge portfolio exposures, or to help identify companies exposed to a theme for investment ideas.
There is further information at the top of each page in the tool.