Transparency needed on ESG

Investment managers incorporating environmental, social, and governance issues (ESG) into their research need to make ESG research more transparent in their investment processes and be more forward looking about ESG matters, according to Robert Fowler, executive manager for investments and governance at HESTA.

Speaking at the Financial Services Council annual conference in Melbourne, Fowler said while good managers incorporated ESG research into their processes, they only tended to do it when they got “hit on the head” with it.

Good managers should be thinking about ESG concerns before they happen, instead of after, and shouldn’t treat it like an ‘on/off’ switch, Fowler said.

ESG should be integrated into the actual valuation of a company, he said.

Andrew Gray, executive director and head of ESG research at Goldman Sachs JBWere, said investment managers trying to pick good quality stocks should consider ESG issues such as corporate governance, human capital management, workplace safety, and how the company is treated by the local community, alongside other investment issues.

ESG research was not about debating moral issues, but creating controls around issues that would affect the value of a company, Gray said.

For example, fund managers did not need to debate the existence of climate change, but acknowledge that coal and carbon was seen by the wider community as something that increasingly needed to be constrained and would affect the share price of certain companies, Gray said.

Investment managers should be looking for issues that would make a material difference to the value of a company into the future, Fowler said.