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Why ESG Matters When it Comes to Investing

In this article, we speak to Juliette Macresy, Head of Vigeo Eiris’ Greater China and South East Asian markets, on the growing trend of sustainable investing in Asia and why "not being sustainable is a direct threat for a given corporation".

Juliette Macresy2019-11-22

Please introduce Vigeo Eiris and how the company is promoting responsible and sustainable investment in the finance industry.

Vigeo Eiris is an international provider of environmental, social and governance (ESG) research and services for asset managers, investors and for listed and unlisted issuers. We undertake risk assessments and evaluate the level of integration of sustainability factors within organisations’ strategies and operations.

Vigeo Eiris offers a wide and exclusive suite of research and ratings products and services on sustainability risks and performance. Our products support investors’ decision-making through a sustainable and ethical investment approach (including ratings, databases, sector analyses, portfolio analyses, structured products, indices and more). Vigeo Eiris obtained ISO 9001: 2015 certification for its processes relating to methodology, rating, sale and delivery of its data to all types of investors.

With a team of more than 240 experts of 28 different nationalities, Vigeo Eiris is present in Paris, London, Brussels, Casablanca, Hong Kong, Milan, Montreal, New York, Rabat, Santiago and Stockholm. The Vigeo Eiris Global Network, comprising 4 exclusive research partners, is present in Brazil, Germany, Israel and Japan.

We’re currently seeing pressure for firms to integrate ESG strategies into investment decisions, why the sudden push/trend?

Firms are facing growing expectations from their stakeholders to account for their willingness and capacity to act responsibly, to reduce their negative externality and to contribute positively to sustainability. COP 21 was a wake-up call for the world in 2015. The finance industry reacted swiftly and started to initiate a transition into a more sustainable and green economy, particularly in the face of the current climate emergency. At this stage, most of the world's leading corporations declare having embraced the 17 Sustainable Development Goals, to which virtually all UN countries have committed.

The recent acceleration to enshrine ESG considerations into investment decisions stems from investors’ fiduciary duty (e.g. UNEPFI). In addition, there are growing initiatives to demonstrate ESG considerations at international and national levels (PRI, Global Compact, SDGs, Montreal Carbon Pledge, French Law for Energy Transition…) and more and more concern about the threats of short-termism on company performance, investment returns and market behaviour.

Moreover, it is now recognized that ESG risks can have a meaningful financial impact: it is recognised that strong ESG performance can reduce capital costs as well as enhancing an assets’ value and improving reputation, human capital, operational efficiency and legal security.

Going forward, ESG analysis will have an ever-greater impact on investment decisions, while being a key driver of the transition to a sustainable economy.

What do you think of the implementation rates in Asia from your perspective?

Asian investors have started more recently to integrate ESG factors into investment decisions, but most countries are now moving fast in this direction via regulation requirements and at the request of large asset owners to select ESG-driven asset managers. Focus in Asia and especially China and HK are more on environmental issues than Social or Governance.

We see policy taking the lead in supporting ESG initiatives, in your opinion, how important is it that asset management firms follow suit?

All stakeholders have a role to play to be able to achieve ambitious climate targets.

Regulators have a role to play in encouraging companies to integrate ESG metrics more systematically into annual accounting and reporting documents, with the same principles of standardisation, oversight, and auditing which apply to purely financial metrics.

Investors have a role to play by requiring companies to demonstrate clear and transparent sustainable strategies and reporting to be able to assess a company’s level of ESG engagement.

How does Vigeo Eiris help financial institutions achieve their ESG goals?

Vigeo Eiris have a wide range of products to help investors, from assessing their ESG strategy to providing data for ESG integration. We also provide tools so investors can define and implement their own customised strategies and report on the impact of their portfolios. Integration of ESG into passive management is increasingly common, with a growing number of thematic or sectorial indices that are based on ESG data from providers such as Vigeo Eiris. We provide a very creative range of indices that gather the most promising issuers on hundreds of ESG topics and indicators.

Vigeo Eiris also has Controversy database, could you please tell me more?

Vigeo Eiris’s controversy database provides a documented and norms-based opinion in real time on companies facing allegations in order to allow financial institutions and investors to manage their risk exposure and take appropriate investment decisions.

The controversy database is continuously screening and qualifying controversies through three factors: severity, frequency and reactiveness of the company.

Our opinion assesses a company’s capacity to manage controversies. It could be lowered when the company faces controversies relating to fundamental issues, such as a considerably adverse impact on the interests of a given company and its stakeholders, without the company permanently being the focus of reactive, reparative or remediative measures. The more the company is exposed to a significant number of controversies, the more our opinion will be altered.

What are the current challenges facing financial institutions from adopting substantial ESG practices as opposed to something to check off the list.

The greatest challenge is their capacity to gather skills and improve their methods so they’re aligned with mainstream ESG understanding and can incorporate adequate measurements in their models.

Your thoughts on ESG Data, its value and its reliability?

Vigeo Eiris has developed a strong methodology with 17 years of history which is thorough, reliable and impartial.

Our methodology is consistent, and is supervised by an independent scientific committee that supports back-testing and trend management. The ratings are consistent and comparable, and we try to have a high level of interaction with rated companies to access the most relevant information.

What are the main ESG trends that Vigeo Eiris is seeing?

One of the main trends we’re seeing is a need to systematically explore sustainability stakes, assess their related risks and opportunities, and explain the weight devoted to ESG factors in investment decisions.

What is Vigeo Eiris currently excited about?

Vigeo Eiris is continuously developing new products to collaborate with investors and help them integrate ESG factors in line with their fiduciary duty.

Our products range from a historical negative screening tool to positive impact solutions and services.

A recent development is Sustainable Goods & Services (SGS). SGS research assesses the extent of corporate involvement in products and services that contribute to the achievement of the UN’s Sustainable Development Goals (SDGs). It addresses the lack of data on SDG performance and makes it easy for investors to understand. We provide a positive screening to identify business activities devoted to sustainable solutions, complementary to the traditional ESG approach.

Will not being sustainable cost a firm going into the future?

Not being sustainable is a direct threat for a given corporation, notably in terms of its brand, attractiveness, capacity to innovate, economic performance, and even existence.

Juliette Macresy took charge of Vigeo Eiris Hong Kong office in September 2017, becoming Head of Greater China and South East Asian markets. She is already working with banks, investors, corporates and international organisations in the region on Green & Sustainable bonds and its derivatives products while marketing Vigeo Eiris ESG research.