Investment climate changes
The Asset Owners Disclosure Project last month released what it claimed to be the first global investment index showing how investors were managing climate change risks. The index relied heavily on public information for the 300-plus investors assessed, with just 17 investors responding directly.
Enter Bloomberg, the global financial news and data giant owned by New York mayor Michael Bloomberg. The company is stepping up the integration of environmental, social and governance (ESG) information it provides to more than 315,000 subscribers around the world.
Mr Bloomberg's calls for greater US urgency to tackle climate change in the wake of hurricane Sandy's destruction in October were hardly his first foray into this field. The 10th-richest American (and world's 20th, according to Forbes) donated $US50 million in 2011 to help force the closure of a third of US coal-fired power plants by 2020.
As a company, Bloomberg has assembled ESG data on more than a quarter of the 20,000 companies that comprise the "general investable universe", said Curtis Ravenel, global head of the company's sustainability group. About half the ASX 100 companies made the list, he said.
"Given our position in the market, we can probably accelerate disclosure more than most," Mr Ravenel said in a recent interview.
While the drive is "a bit mission-oriented", Mr Ravenel said investment interest was also growing: "There are investors, hedge funds and the like who really think that when you integrate ESG information, there's alpha opportunity.
"Some people think it's a good tool for managing a company's risk. Some think it's a proxy for good management overall."
Local Government Super is one Australian fund to back the greater use of ESG measures. Its own investment stance earned it one of just two "triple A" ratings granted globally by the Asset Owners Disclosure Project.
"Certainly the sustainable overlay has added to our performance," said Peter Lambert, chief executive of the fund. To the end of November, its Sustainable Australian Shares fund had returned about 11 per cent since inception last February, Mr Lambert said. That compared with 8.7 per cent for the benchmark S&P/ASX 200 over the same period.
Frequently Asked Questions about this Article…
The Asset Owners Disclosure Project is described in the article as what it claims to be the first global investment index showing how investors are managing climate change risks. The index assessed more than 300 investors but relied heavily on public information, with only 17 investors responding directly.
Bloomberg is stepping up the integration of environmental, social and governance (ESG) information into its services for more than 315,000 subscribers. The company has assembled ESG data on more than a quarter of the 20,000 companies in the general investable universe, and about half of ASX 100 companies made that list — a capability the article says can help accelerate corporate disclosure and give investors better ESG insights.
The article says disclosure can be an uphill battle: many investors and funds do not fully reveal key environmental metrics such as fossil fuel reserves or carbon dioxide emissions, which is why the AODP index had to rely largely on public information rather than direct responses.
According to the article, interest is growing among investors and hedge funds who believe integrating ESG information can create alpha opportunities. Others view ESG as a tool for managing company-level risk or as a proxy for good overall management — all reasons cited for why ESG might contribute to better investment outcomes.
The article highlights Local Government Super, which earned one of only two 'triple A' ratings from the Asset Owners Disclosure Project. Its chief executive Peter Lambert said the sustainable overlay has added to performance: to the end of November, its Sustainable Australian Shares fund had returned about 11% since inception last February compared with 8.7% for the S&P/ASX 200 benchmark over the same period.
The article implies investors should be aware of limitations: the AODP index covered 300-plus investors but depended heavily on publicly available information and had just 17 direct respondents. That means the index is a useful indicator of disclosure and practice, but investors should consider how the data was collected when using it for decisions.
The article notes Michael Bloomberg, owner of Bloomberg LP, has been active on climate issues — calling for greater US urgency after Hurricane Sandy and donating US$50 million in 2011 to efforts aimed at closing about a third of US coal-fired power plants by 2020. His company is also expanding ESG data coverage for global subscribers.
Based on the article, everyday investors can use ESG disclosures as a risk-management tool or as a proxy for strong corporate management. Practical steps implied include looking for funds with a sustainable overlay, using ESG data providers (like Bloomberg) to screen companies, and checking independent indices (such as the AODP) for how well funds disclose climate-related risks.
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