Elsa Pau, founder of BlueOnion, speaks about ESG investing at the Environmental Finance Asia conference.
“We can produce more data for asset managers to have more meaningful and productive engagement when considering potential investments. The stewardship scope can be expanded quantitatively and built on year on year.”
Investors should more often look past ‘easy’ assessments of environmental issues to tackle more material social and governance concerns, according to data provider BlueOnion. Co-founder and CEO Elsa Pau said at the Environmental Finance Asia conference that environmental issues are often the focus of investors because the data on aspects such as greenhouse gas emissions is easier to get than it is for social aspects, for example.
Social and governance issues, by contrast, can “be more difficult to quantify” but are sometimes more material to some portfolio companies.
“That people don’t just focus on the climate but rather focus on social and governance [judged according to] the materiality relative to their respective sectors.”
This should frame the weighting of portfolios and will likely deliver better returns, she said.
“Not everything is relevant to every business. For financial services like banks or asset managers, environment is not [as] material.”
“Surprisingly, unless you are an insurance company, then physical and transitional risk is [relatively] not that significant.”
“They need to understand the sectors and buckets where the investees belong and what are the materiality issues that are affecting their decisions.”
Pau explained investors shouldn’t require a company to score 100% on every key performance indicator but instead assess which are the most material metrics. For technology companies, she said, social metrics such as working conditions, labour rights, diversity and trading hours are more material than systemic climate risk.
Consideration of other factors is improving however and with regulators and investors applying pressure, many are looking to make these considerations. It is picking up quickly across Asia, and in frontier markets such as Cambodia.
“They’re very, very actively getting prepared.”
Improving data year on year will also enable investors to hold investees to account over a longer period of time.
“You don’t want to invest in a company that’s randomly doing well. It’s important to track the companies you’re investing in on their historical path.”
“We can produce more data for asset managers to have more meaningful and productive engagement when considering potential investments. The stewardship scope can be expanded quantitatively and built on year on year.”
“I hope more companies will not just be pleasing regulators but using the data to actually generate better outcomes.”