Introducing environment, social and governance (ESG) into a fund manager’s overall research process has not been easy, but there have been benefits, according to Maple-Brown Abbott portfolio manager Sam Dyson.
“Most of the challenges for us introducing ESG research has been administrative and with capturing the data,” he told the Australian Council of Superannuation Investors (ACSI) conference in Melbourne last Friday.
“We have also found our client expectations of ESG research do vary,” he said.
The fund manager decided to introduce ESG research but found the scope very broad and with only 17 analysts had limitations on how much could be undertaken internally.
“Initially there was a lot of denial,” Dyson said.
“So one of the first things we did was bring in an external consultant who had ESG experience.”
He conceded there was a level of internal opposition to ESG research as some staff could see not benefit.
“But we saw ESG had to add value to the investment performance and for it to be cost effective,” Dyson said.
“We used the [UN Principles for Responsible Investment] as the starting point for using ESG research and did become a signatory.”
Maple-Brown Abbott started the ESG process at the data gathering stage and looked to create a common set of guidelines to apply to companies.
Dyson admitted this had not been as successful as they hoped.
“We have found it difficult to compare companies based on ESG,” he said.
“But we have done some work on quantifying the ESG risks, but in the end it boils down to a judgment call.”
However, ESG has been useful in assessing management.
“The engagement process has meant we can ask management about ESG issues and how they are progressing on reporting on them,” Dyson said.
“We are now also collecting information on ESG issues within particular industries.”
An example is how building materials companies report on asbestos issues.
While ESG has been incorporated in Maple-Brown Abbott’s research process, Dyson said the fund manager was not planning to implement negative screening on these issues.
“We won’t produce an ESG product and investment performance of a fund is still our number one priority.”
Dyson said the fund manager was still happy for clients to take the leadership role on ESG as it gets value from being discreet.
“We admit we are not there yet on ESG research, but it has been useful managing the risks of some investments,” he said.
