BP debacle could increase cost of ESG research, experts say
GLOBAL - Institutional investors could end up paying more for investment research following the financial fallout from BP's oil spillage, says Matt Christensen, executive director at Eurosif, a European network and think-tank on sustainable investing.
Christensen said the crisis highlighted the importance of the value added by understanding environmental, social and corporate governance (ESG) risks and getting detailed information that might be unavailable from public sources.
"Researchers will have to carve out relationships with companies themselves and dig out that information," he said.
"But investors will have to pay more for that differential research."
Investors will certainly get tougher with investee companies, according to David Paterson, head of corporate governance at NAPF.
But he said he did not foresee a wholesale stampede toward the adoption of screened funds.
"There is a desire to interrogate companies more about ESG issues," he said.
"Investors will be asking more questions of companies that have environmental risks built into their businesses."
He said he was "not a fan", however, of screened funds as a core approach to investing.
"We would prefer to engage with companies to improve their standards," he said.
"If they do that, and it is reflected in results, then there is a positive benefit for investors."
Barbara Evans, sustainability analyst at RCM, said: "The BP crisis will certainly change the way analysts look at companies.
"BP has good corporate governance and high-quality management and is subject to a lot of investor scrutiny.
"It is particularly transparent from an investor perspective on sustainability, health and safety and energy efficiency - and yet this still happened."
She said ESG research had to become more sophisticated.
"It's not enough for companies to report on ESG issues - they have to embed them in the culture," she said.
"Pension fund investors should assess parameters such as how management is incentivised, whether health and safety is a key priority, and how important are environmental and social risks when putting together company strategy."