“There is a huge new field of energy technology, clean technology and water technology in which there will be successful drivers reflecting market forces, early-mover advantages and government-supported pricing and science. There are a lot of big funds that can turn their firepower on this.” The shift to integration of ESG risk clearly indicated that investors did not want to forgo the returns these companies might provide, but rather use their weight on company registers to influence, rather than condemn, how these businesses operated.  Within this shift, investors in different markets pursued different ESG themes. European investors wanted to avoid links to cluster-bombs, and the Sudanese civil war was a big problem for US investors. Australians, meanwhile, were keeping watch on banks: not because of their governance and operations, but because of their exposures through loan books.  A bank itself could have the best carbon management policy, but if its loan book was financing environmentally damaging industries, it bore some of this risk.

ESG risks varied among industries. For example, supply-chain risk for a weapons manufacturer was different to, say, water management risk within a resources company, Briand said.  This kind of analysis could be seen as an add-on to fundamental research companies. And, as in other fields of investment research, investors should look beyond company’s annual reports and to other sources of information – such as water usage metrics filed with local authorities, or upcoming regulatory changes that could affect the way business was done. This could take some digging. “To get health and safety information from authorities, you might need to call between four and five local authorities,” Briand said.

“There is value in doing this not-so-fun work of going through the files.”  It can get tedious, he admits, and can lead to more questions than answers. This may be one reason why funds managers are paying for these services. “They see the value in someone doing it for them.” The Deepwater Horizon oil spill, both an environmental and financial calamity, provided an interesting case study for the merit of ESG research. “BP was – and still is – a difficult case. On one hand, BP had very good communication strategies in terms of their environmental policies and [for] alternative energy. But there was one dimension in which they were bottom-quartile, and that was health and safety.  “If you stuck to corporate reporting data, everything inside BP was rosy. But if you got to some statistics disclosed by some regulatory authorities in the US, you realise it was very poor.” This was, by no means, a predictor of the oil spill. But investors who saw corporate health and safety as a significant risk should have been underweight BP shares before the disaster took place.