High calibre entries from some of the country’s biggest broking and other financial services players mark the continued push by market leaders to factor Environmental, Social and Governance (ESG) research into mainstream investment analysis.

The annual Awards are conducted by ESG Research Australia (ESGRA), the industry association whose members include major superannuation funds and investment management firms with a combined $600 billion in funds under management.

Winners were announced today at a lunchtime event attended by some 120 ESGRA members and their guests who were addressed by Nigel Hartley, Executive General Manager, Sustainability of Oil Search Limited who discussed the numerous ESG challenges his organisation faces operating in Papua New Guinea.

This year’s winners are, in the ‘Best Piece of ESG Research by an Individual Analyst or Team’ category, Hamish Tadgell and Jien Goh of Goldman Sachs for their research work, Equity Strategy: Introducing the GS&PA Structural Leaders Framework. The ‘Best ESG Broking Firm as voted by Investment Managers’ went, for the second year in a row, to Citi, in recognition of work by analyst Elaine Prior. The awards apply to research undertaken in 2010.

Also highly commended was the work by Alva Devoy, Elliot Crane, Mark Williams and Michael Newbold of RBS, for their research: Australian Strategy: RBS ESG – Qantas.

According to the judging panel, which comprised 12 representatives from 10 ESG RA members, nominated ESG research this year covered a broader range of issues than last year’s, going beyond concern with emissions and other clear ‘environmental’ issues to address the ‘social’ and ‘governance’ parts of the ESG spectrum.

“This is a welcome feature that we called for in last year’s awards. Although final awards decisions were not easy to make, overall we were most impressed by reports that attempted to integrate ESG research into the mainstream,” said Amanda McCluskey Head of Responsible Investment at Colonial First State Global Asset Management and Chair of the Research Evaluation Committee of ESG RA.

In other comments, the judges welcomed the growing number of mainstream analysts getting involved in ESG research. And, while acknowledging the challenges of integrating such research into stock evaluations and macro strategy, the judges said that they were seeing a real effort to form a view on what’s material and what’s not. The days of merely ‘ticking a few ESG boxes’ are clearly long gone.

“The need to define objectively what factors are material, and how they can measurably affect investment performance one way or the other has been an ongoing issue in the development of ESG research,” said Rob Fowler, Chair ESG RA.

“In this year’s awards, it is clear that we are getting closer to research that has relevance to investment outcomes and can be applied and assessed in the same manner as other considerations that analysts look at in coming to their decisions.”

Another consistent feature of this year’s entries – which are judged against four key criteria (see below) – was increased rigour, with research becoming more thorough and detailed.

“We are extremely pleased with the breadth, quality and calibre of ESG research this year,” said McCluskey.

“While there is undeniably more work to be done, the improvements we are now seeing year on year augur well for the incorporation of ESG in to the investments made by the financial services industry to the benefit of the millions of people they are committed to supporting.”

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Chair of ESG RA, Rob Fowler, said: “We are delighted to have recently signed on our 50th member, CommInsure.  Pleasing as it is to have reached 50 members, the most important thing is that ESG RA is really making a difference in broker attitudes to the incorporation of ESG in their research.  Most major broking houses are now producing ESG research, and we have seen that research increase in quality and volume.  That is a real change from where we were when ESG RA started in 2009.

“We are now getting the cut-through that we really want.  We firmly believe that the incorporation of ESG factors into equity research will drive deeper understanding of company operations, more accurate valuations and better investment decisions.

“This ultimately will lead to better returns for superannuation fund members,” he said.

The awards will acknowledge research completed and published in 2010, and will cover:

• Best Piece of ESG Research by an Individual Analyst or Team; and
• Best ESG Broking Firm as Voted by Investment Managers.

Chair of the ESG RA’s Research Evaluation group, Amanda McCluskey, said: “We think it is important to publicly acknowledge excellence in the field of ESG research. While the Australian research in this area is increasing, we hope these awards further encourage and promote high quality ESG broker research into Australia equities”.

ESG RA is part of a global trend in focusing on better financial analysis.  There is, for example, a very direct connection between ESG RA and the United Nations Principles for Responsible Investment (UNPRI) – even though there is no requirement for ESG RA members to be signatories to the UNPRI.  ESG RA offers a practical way for UNPRI signatories to fulfil some of their key obligations.

The ultimate aim is to have ESG analysis included in mainstream financial research.  As Rob Fowler said, “We want ESG to be considered as integral to the core business of fund managers and stock brokers – we want ESG RA to be a catalyst in changing ESG from a niche to a mainstream activity”.

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