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Donald Trump’s ascendancy to a second term of the US presidency has brought with it a significant change in approach from his predecessor across a vast array of different policy areas.
One that has gone slightly under the radar recently, amid brewing trade wars and Trump’s extremely active interventions in the geopolitical sphere, is his bonfire of Environmental, Social and Governance (ESG) policies.
A full-scale assault on the more ideological and easily politicized elements of ESG is underway, reflected in a stark drop in public discourse from many companies.
However, not only will ESG analysis continue to be an important element of Investment and Risk analysis for the Buy-Side, the broader ESG Investment space could be in for a boom in business.
Asset Managers are not just servicing a set of anti-ESG American investors, they manage funds for Institutional Investors from around the world, many of which continue to signal that reporting on ESG factors is important to them.
For example, Norway’s $1.8tn (£1.4tn) Sovereign Wealth Fund continues to cut companies from its portfolio based on Sustainability assessments, and just recently the People’s Pension in the UK shifted a £28bn responsible investing mandate from State Street Global Advisors to Amundi and Invesco on the basis of their ESG credentials.
Similarly, Wealth Managers will be working with a range of clients, many of which demand ESG analysis baked into the regular reporting they receive from their advisers.
One of the key reasons that there is still significant demand for this information is simple, it is another useful metric to use when creating assessments on the long-term value that a security can deliver.
This is echoed by recent comments from NBIM’s Chief Governance and Compliance Officer, who stated that “ESG… for us it’s always been about financial materiality.”
We are living in a Data-driven age. You can look for examples of this generational shift everywhere, from the emphasis put on it by sports teams selecting transfer targets, to analysis of consumer buying patterns, to the way that companies pick stocks.
ESG Data is another broad dataset many investors believe can help them to uncover the full story behind an Asset. For this reason, ESG analysis will continue to be an essential and regularly implemented measure within most investors’ processes.
However, the Data that is available, or at least easily available, will inevitably be impacted by the Trump administration’s policies.
If companies have much less stringent regulatory requirements in the US from an ESG Reporting perspective, there will be less publicly available information to deploy when conducting this type of analysis.
What does this mean in practice? Trump’s anti-ESG policies could unwittingly provide a boom to the ESG Data business.
The information that ESG Data Vendors can provide on Assets should become more coveted if it is harder to come by – which it should, given that the flow of information flooding into the public domain through Regulatory filings will likely become more of a trickle, based on the massive policy overhaul that is underway.
Moreover, it will mean asset managers need to do more with the Data that they can get their hands on. In practice, this means being able to process and disseminate it throughout the business in standardised formats.
This enables each different team to deploy the Data that is being consumed, be that the investment team, the Risk team, or the Regulatory Reporting teams that will still have to grapple with the fact that ESG Reporting requirements are diverging across geographical lines.
While Trump’s assault on the very philosophy underpinning the term ESG has significant momentum, ESG information still has an important role to play in investment analysis, which means the president may have just provided a windfall to ESG Data Vendors, as the ocean of Regulatory filings west of the Atlantic rapidly becomes an oasis.
Yann Bloch is Vice-President of Product Management Americas at NeoXam
