There has been an exponential increase in ratings and indices that investment service providers offer to aid investors in assessing ESG performance.
The JSE currently operates the FTSE/JSE Responsible Investment Index Series which leverages the global FTSE ESG Ratings to offer investors access to ESG data as well as a benchmark and a tradable index product. Large organisations, such as HSBC and Bloomberg, provide information and analysis services to RI investors, and, third party firms use this information to classify companies for investors in terms of ESG compliance.
To this end, there is an onus on asset owners to ensure that reporting on material ESG impacts and imperatives continues to receive the attention from corporates required to promote the extensive uptake of this practice.
Some of the providers in this sector are major financial services companies that have developed an ESG research capability such as MSCI or independent companies that solely provide this kind of research (e.g. Sustainalytics, Vigeo, GES, Ethix, EIRIS, Solaron, InRate and others). The larger companies often cover several thousand listed companies globally; others specialise in companies in their region. These companies often also offer other aligned services, such as bespoke research on particular themes, proxy voting services and engagement with companies.
Many institutional investors now rely on these research providers rather than doing this primary research themselves. However, the challenge they face having bought this information is to set up effective internal systems that enable investment managers to properly integrate this research into investment decision-making and/or to use it as the basis for informed engagement. Often, additional in-house research is needed to be able to link this qualitative research to investment decision-making.