Environmental, social, and governance (ESG) measures have not always been readily available in one identifiable metric. Yet according to a Reuters report, one U.S. brokerage is now the first to integrate an ESG score into company equity reports.
The brokerage, Cowen, developed a simple score that runs from 1 to 100 with 50 representing a neutral score and anything over 50 a positive score. The score can help ease the burden of having to pore over a company’s fundamentals in order to see exactly how well it fits into an investor’s ESG narrative.
“The announcement comes as more investors look to assess the potential impact on a company’s value of issues as wide ranging as carbon emissions, worker relations and boardroom diversity,” the Reuters report said. “Cowen said it would use technology and data from third-party ESG specialist Truvalue Labs, which deploys artificial intelligence to assess more than 100,000 sources of information that can help give a steer on potential issues and controversies in real time.”
“ESG factors have become a critical component of the investment process and there is a distinct need to have a solution set that can address the volume of information involved and standardisation needed to have a clear view of corporate progress,” Robert Fagin, Cowen’s Director of Research said in a statement.
Cowen Adding to the Analyst Toolbox
ESG “scores would be made available to Cowen’s team of 55 analysts from Monday, with coverage expected for all the companies it analyses, except those for which sufficient ESG data is not available.”
Furthermore, while the ESG scores add to an analyst’s toolbox, how they use them is up to the individual analyst. The report noted that while “the score would be available to analysts and clients alike, Fagin told Reuters there was no hard and fast rule for how the ESG score would be reflected in recommendations to clients.”
“We’re encouraging our analysts to look deeply into the data and incorporate ESG thinking into their overall picture, but there’s no particular formula that we’ve mandated in terms of how they do that.”
The interest in ESG is certainly warranted given the strength of the MSCI ACWI ESG Focus index. The index itself is up almost 30% within the past year, and almost 80% within the last five years.
For more news and information, visit the ESG Channel.