PI Partnership – Newton Investment Management
ESG AND DATA: THE NEED FOR CONSISTENCY
Ian Burger is head of responsible investment at Newton Investment Management
The growth in environmental, social and governance (ESG) data providers has been prolific in recent years, leaving no shortage of information for investors to pour over. The issue, however, is that there is no internationally agreed framework on ESG standards and, thus, little consistency in how data is collected and reported by these third-party data providers. There are also gaps and misalignment in the types of data and methodologies used for handling data.
As responsible investors, we need to have confidence in the public statements and reports published by the companies we invest in. If anything, as sustainable investing grows, the reli- ance on data is becoming increasingly evident, as is the need for that data to be consistent and of high quality. As an industry, we must be conscious of the methodologies data providers use and ensure that we are aligned with them. We anticipate that data providers should soon expect to receive increased regulatory attention as more and more capital is directed into specific sustainable and ESG-related strategies off the back of third-party ESG ratings providers.
An independent view At Newton Investment Management, while we are cognisant of third-party ratings, we think it prudent to focus more on the raw data provided by companies, where this is available and accessible. This data is often either audited or assured and reported directly by the companies themselves. That is not to say that we don’t believe that third-party ESG data can be a useful tool; it is important to understand where third- party data providers’ and rating agencies’ current thinking is, as part of a holistic approach to assessing the sustainability and ESG credentials of companies. We believe it is also important to understand and be comfortable with the methodology one is choosing to rate investments from a sustainability or ESG perspective.
A consistent approach Take the tackling of climate change, for example. While this is still a nascent area, examining the temperature alignment of a portfolio to see if it is consistent with the goal of minimising global warming is among the most developed in terms of anal- ysis within the ESG area. Again, the need for consistency comes to the fore.
24 Feb 2022 portfolio institutional roundtable: Sustainable investing
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