What companies (typically) do know (about sustainable investment)

Companies typically know that:

• Sustainable investment is growing rapidly – driven by growing awareness of climate change, biodiversity, public health and other social and environmental issues
• ‘Mainstream’ investors are getting more interested in the sustainability exposures and management practices of companies
• ‘ESG ratings agencies’ are publishing ratings that assess their sustainability exposures and management practices so that they can be included / excluded from various specialist ESG / low-carbon funds and indices.

What companies (typically) don’t know (about sustainable investment)

Companies are rarely aware of:

• The underlying drivers of sustainable investment growth (regulatory obligations on asset managers and institutional investor demand)
• The breadth and diversity of the sustainable investment research that is being written about them.
• HOW such research is being used, BY WHOM it is used and FOR WHAT investment purposes it is used
• Specifically, companies tend focus on the DATA and RATINGS produced by ESG ratings agencies and data providers. They overlook ANALYSIS that is being written on them by the – often more influential – sell-side brokers, credit ratings agencies, engagement service providers and 'for impact' and 'grant-funded' research providers
• Fundamentally, this is driven by the fact that companies often do not understand the difference between sustainable investment DATA, RATINGS and ANALYSIS

Why this matters

Practically, these gaps in understanding often cause companies to spend:

• too much time seeking and disclosing data minutiae that are of no relevance to the investment case that 'mainstream investors' will be interested in and
• too little time shaping and communicating investment-relevant messages that can be used by the investors that ultimately allocate most capital

(It also matters because excessive focus on data without contextual analysis results in capital misallocation (and in the most extreme cases investment bubbles).  However, that concern is not the subject of this paper.)

This working paper

In this working paper, we outline and explain:

• WHAT: The different types of sustainable investment research are DATA, RATINGS and ANALYSIS
• FOR WHOM: The different types of investors that use these different types of research
• WHY: The different uses to which it is put
• BY WHOM: The different types of research provider that provide such types of research

We also provide some tips for companies that are looking to expand the breadth and quality of their engagement with investors on sustainability issues.