Integrating ESG into Investment Research - Goldman Sachs

A presentation by Goldman Sachs
June 2006

Sarah Forrest

sarah.forrest@gs.com

http://www.ahcgroup.com/powerpoint/GoldmanSachsPresentation.ppt


What Are Thought Leaders / Leading Financial Industry Organizations
Saying About E S G? Sustainability?

http://www.ga-institute.com/esg-matters/what-leaders-are-saying.html

Goldman Sachs – “GS SUSTAIN”

Over the past five years new analytic tools were developed by global investment bankers Goldman Sachs “to help pick tomorrow’s capital market winners,” and to develop a short list of companies that could be positioned as market winners for the long-term. The GS “Green is Gold” report at the end of 2007 states that there was a 25 percent premium for companies with a good ESG record against peers in the MSCI World Index (since August 2005. To date these are mostly EU and UK companies; 25% are US-based.) The comprehensive GS SUSTAIN framework created by Goldman Sachs will be a major influence in advancing ESG metrics for investors and analysts and investment bankers in the USA in the months ahead.

http://www.unglobalcompact.org/docs/summit2007/gs_esg_embargoed_until030707pdf.pdf


CFA Institute (the trade association for financial analysts)

“Investors are generally well-served in analyzing a public company’s financial data, but as more and more firms provide non-financial ESG metrics, investors are finding it challenging to understand and incorporate this into their research models.” – Matt Orsagh, CFA, CIPM, project manager for the Institute’s ESG Manual.

“Successful investing is dependent on one’s ability to discern the factors that influence the market’s valuation of a Company and then judge the accuracy of that valuation. In recent years non-financial factors – including environmental, social and governance factors – have figured ever more prominently in the value of corporations…ESG factors represent a broad set of intrinsic concerns that may ultimately affect valuation of equity, fixed-income, real estate and infrastructure investments…” – from the CFA Institute’s ESG Manual for Investors. (May 2008)



Bloomberg News – Tracking and Evaluating ESG Factors

Bloomberg News is serviced by 135 bureaus worldwide and supplemented by a huge number of news wires, RSS wires and more, is presenting ESG information through a number of screens: “News, Research, Third Party Data Sets & Research, Indices, Funds, Bloomberg Law, Energy & Emissions, Management & Bios, Financial Analysis, Company Risk, Equity Screening, Equity Scoring, and Portfolio Analysis.” Using these powerful, sophisticated tools, investors are building their own models for ESG metric evaluation.



Mercer - Marsh & McLennan Companies (NYSE:MMC)

Mercer global [investment] manager research has further evolved its manager research process to evaluate the extent to which fund managers proactively integrate ESG factors into their mainstream investment process (May 2008). Institutional asset managers are becoming increasingly interested in whether managers behave as active owners of capital and whether they reflect the materiality of ESG in their investment decision-making. Mercer’s existing ESG research process has been expanded to rate all [investment] managers on their ESG capabilities at the strategy level. Craig Metrick, US head of Mercer’s responsible lending team: “For Mercer to take this step sends a clear signal to managers and owners. Not only do we believe that ESG factors are important, but our clients (some of the largest asset owners in the world) do too.”



Responsible Investor – United Kingdom

Could sovereign wealth funds be the most important trends in ESG investing,” the publishers asked in July 2008? SWFs – thinking of China, the Middle East, and Singapore – are becoming important shareowners in Citigroup, Merrill Lynch, UBS, and Barclays. (Estimates are total SWF assets are $3 billion and growing substantially.) SWFs, says RI, are in different stages of adopting ESG policies for the relationships with their “investees.” Could we see more divestment – such as Norway’s Global Pension Fund dumping its ownership in Wal-Mart? Norway and the New Zealand SWFs cite higher returns and national values as reasons for a focus on ESG. The largest Norwegian investors are said to be lobbying that country’s top companies to report to a set of standards on the environment, labor and human rights, says RI.



New York Society of Securities Analysts (NYSSA)

Program, May 2008 – “Responsible Investment Across Asset Classes: Diversification in ESG Investing.” Traditionally, socially responsible investing (SRI) was largely limited to public equity and fixed-income funds. As responsible investing concepts have evolved and increasingly incorporated environmental, social and governance (ESG) analysis into decision-making, an array of investment products has emerged. These offer market returns, liquidity and diversification; they are relevant for both high net-worth individuals and institutional investors.

Business For Social Responsibility (BSR)

The topic of incorporating ESG criteria as part of a long-term company valuation by financial institutions has been entering mainstream debate in recent years. Although many mainstream institutions such as ABN AMRO and Goldman Sachs have begun considering the effects of including ESG criteria as part of their fundamental financial analysis, investors are waiting for vetted proof of long-term materiality before fully incorporating the criteria.

If ESG criteria become part of mainstream financial analysis, it can have an important influence on how public companies manage these issues. It is therefore important to understand how these criteria are being incorporated by mainstream financial institutions, as well as the barriers that have prevented such integration from becoming universally practiced. [BSR has issued a report on ESG and Mainstream Investing, August 2008] The report evaluates the challenges that have faced and solutions have been proposed industry-wide.

for PDF copy of report, click on
http://www.bsr.org/reports/BSR_ESG_Mainstream_Investing.pdf



Your Company's ESG - Environmental, Social, and Governance Factors Are Mattering More Now to Institutional Investors (By Hank Boerner, CEO - Governance & Accountability Institute) - Published September/October 2007 in Corporate Finance Review

http://www.hankboerner.com/library/Corporate%20Finance%20Review/Your%20Companies%20ESG%20-%20Enviro%20Social%20Governance%20(09&10-2007).pdf