With Bloomberg launching a new environmental, social, and governance (ESG) data service for its stock data service subscribers, ESG data are becoming increasingly visible and available to mainstream investors and analysts, even if they're not specifically looking for it.
We believe that this is indicative of a larger trend, where mainstream investors are beginning to use ESG criteria in a variety of ways to inform their investment decisions. No longer just the realm of the socially responsible investment (SRI) community, ESG data can provide better metrics for risk, good quality management, or just a more long-term perspective on a company.
This development, which BSR describes in its new report “ESG in the Mainstream: The Role for Companies and Investors in Environmental, Social, and Governance Integration,” is what is known as “ESG integration,” which refers to the incorporation of ESG criteria into investment analysis based on the belief that ESG issues are a driver of financial returns.
While this trend has a long way to go before the use of ESG criteria becomes standard practice in any traditional financial valuation, we are seeing much greater use by certain types of investors, such as pension funds, and with specific products or funds.
This increase in investor interest will have major implications for public companies as well. Currently, companies complain that analysts aren’t interested in ESG issues, and investors argue that companies sideline the issues rather than integrate them into the business. Companies will need to enhance their sustainability strategies and ensure that they focus on the issues most material to their business, and they’ll need to communicate those efforts and results to the investment community—something that is not yet happening.