Barr’s view relies on a 30-year historical past of ESG information assortment. Morningstar Sustainalytics, he explains, now gather over 3000 datapoints round ESG. These are components as various as an organization’s water consumption and its whistle-blower coverage. They will construct scores merchandise primarily based on these datapoints which may, in flip, inform investor choices round ESG.
Whereas ESG has turn into politicized in a number of arenas, Barr prefers to think about the strategy as merely a complement to conventional monetary analysis. The place a monetary analysis agency would gather information round an organization’s income, liabilities, and margins, a agency like Sustainalytics will have a look at the variety of worker deaths, a agency’s turnover charge, and air pollution greatest practices. Given a number of the idiosyncratic dangers that may emerge from non-financial components, there could also be some worth in understanding that data.
Some Canadian traders at the moment are utilizing these metrics as a display to weed out ‘dangerous actors’ from their portfolios. Others are utilizing ESG scores to focus on the place they could wish to have interaction with an organization and enhance its observe.
Some ESG advertising and marketing, particularly earlier than 2022, highlighted that ESG portfolios are likely to outperform non-ESG portfolios. Barr pushes again on that concept, noting that ESG didn’t originate as an alpha-generation technique. Relatively it started with an concept of constructing portfolios extra value-aligned. Furthermore, he notes that whereas some comparisons will present ESG outperformance, the character of funding indexes and time horizons is such that straightforward information choice can present outperformance of virtually any technique, a minimum of on the floor.
The utility of ESG, Barr notes, is available in each the creation of a way {that a} portfolio aligns with an investor’s values, and in safety in opposition to some idiosyncratic dangers. Maybe counter-intuitively, one of many main Canadian sectors that makes use of ESG information is oil and gasoline. He notes that many Canadian oil & gasoline corporations are stronger throughout many ESG standards than different corporations. They have a look at ESG information round items like office security and governance, in addition to environmental points like carbon emissions and water consumption. Not solely do they see a shift coming away from fossil fuels, however they know that in the event that they devour much less water — for instance — they are going to save on prices and enhance their margins.
