Corporate co-operation with the environmental, social and governance (ESG) data specialist unit of S&P is on track to rise up to 30 per cent this year as the thirst for reliable information in the sector surges.
Reid Steadman, S&P Dow Jones Indices global ESG head, told a NZ audience – in an event organised by MinterEllisonRuddWatts and Kernel Wealth – that the projected 25 to 30 per cent jump in company engagement in the parent group’s annual Corporate Sustainability Assessment (CSA) process follows a 20 per cent increase last year.
In a pre-recorded video session, Steadman said the CSA data, which amalgamates between 600 to 1,000 data points on over 3,400 global listed companies, feeds into the construction of the S&P sustainability indices.
Earlier this month Kernel launched the NZ 50 ESG Tilted Fund based on a newly constructed S&P index, among three new sustainability-themed products released by the Auckland boutique.
S&P also rolled out two carbon-lite NZX indices in May “amid rapidly growing investor interest”, according to a release at the time.
Last year S&P invited over 3,400 listed firms across the world to supply ESG information through the CSA questionnaire, of which almost 1,400 complied in full while 2,000 or so just provided publicly available data.
Steadman said the addition of private ESG disclosures to public corporate information (such as via annual reports and financial statements) raised the quality of the datasets for investors – and ultimately improved capital market behaviour.
He said the rapid increase in companies participating in the CSA – which requires “high commitment” – reflected the growing influence of ESG in investor decision-making, both at the institutional and retail levels.
As at last week over 466 companies took part in the CSA 2021 survey for the first time with 120 firms returning “after taking a break”, the S&P website says.
Just 280 companies supplied data when the CSA first launched in 1999, rising to 700 by 2010.
According to Steadman, properly implemented ESG strategies need high-quality and detailed information.
“Some datasets just collect information from public sources but we need to be driving data from the companies,” he said. “We can ask companies the difficult questions and drive better disclosures.”
Steadman said ESG investing was moving away from a pure exclusions-based practice to more nuanced strategies such as the index-tilting enabled by the S&P sustainability benchmarks.
“Now we can tilt [an index] to companies that are good and away from those that are worse, relative to peers,” he said.
ESG reporting was more important now, too, Steadman said, as corporate value was dominated by “intangible” factors rather than physical assets.
Intangibles today represent about 85 per cent of company valuations, reversing the pre-1980s figure when the same proportion was linked to physical assets (plant and machinery, for example).
“From an index provider’s perspective, ESG truly cuts across all markets,” Steadman said. “Sustainability will be a driving force in investments for many years to come.”
The Auckland event – hosted by Kernel founder, Dean Anderson, also featured presentations from: independent directors, Debbie Birch and Rob Campbell; MinterEllisonRuddWatts partner, Lloyd Kavanagh; and BNZ head of sustainable finance, Louise Tong.