The $15.3 billion boutique Maple-Brown Abbott has employed Innovest Strategic Value Advisers to provide research on environmental, social and governance (ESG) risks to listed companies in the domestic and Asian markets.
Innovest was chosen from a shortlist of three providers due to its partnerships with similar researchers in Asian markets, Mark Herdman, Maple-Brown Abbott’s chief operating officer and head of research, said. “We needed ESG research across the region, and Innovest can provide reasonable Asian coverage.”
The appointment was made to assist the value manager integrate the United Nations Principles of Responsible Investment (UNPRI), which it became a signatory to in March, into its analyses of companies. While Innovest can supply information on all of the companies in Maple-Brown Abbott’s Australian portfolio, it covers approximately 50 per cent of the Asian universe, by market capitalisation, due to lower disclosure standards in the region.
Herdman said the purpose of qualitative ESG research was to identify risks to company performance that might be excluded by traditional analysis. “Are there any material ESG issues that can impact on valuations and earnings, and has the market already acknowledged these?” he asked.
“Investment people should have a good deal of cynicism, but the more you look at ESG, the more you come to a conclusion that it will have material effects. “Clients would expect us to look at [ESG] if it could impact returns or valuations.” The manager would not screen out companies on the basis of ESG findings, but would consider them as an input into the analyses of companies, he said. It was also prepared to engage company boards in regard to ESG concerns, which would be raised alongside typical investment questions, and had expanded its internal research processes to include ESG research on companies.
While Herdman is driving the research program, additional work was being absorbed by all analysts. Analysts covering the energy sector have been forced to take ESG factors into account already because of an impending national emissions-trading scheme.
“Emissions-trading will increase energy costs. That’s coming, and it will be the most quantifiable ESG risk. “ESG research would have evolved to become part of the analytical process naturally but it has now been given a higher profile. “It makes business and investment sense,” Herdman concluded.