Lonsec has partnered with specialist Perth-based data provider Sustainable Platform to enable its research users to assess the ESG implications of their clients’ investments. The deal allows Lonsec to drill down further than previously to underlying stocks in a manager’s portfolio.
Lonsec will continue to assess fund managers’ processes against the principles of Responsible Investing as part of its investment rating, however it will also introduce a new rating to go beyond current ESG labels by analysing the underlying products and services provided by the companies in their portfolio and their compatibility with the United Nation’s 17 Sustainable Development Goals (SDGs). The research house believes this will help financial advisors select genuinely sustainable products that are aligned with their clients’ values.
Charlie Haynes, Lonsec chief executive, said: “There’s a growing desire among advice clients for investment solutions that don’t just take ESG factors into account, but put their money where their mouth is and actively consider the broader social and environmental impacts of the holdings in their portfolios. Part of the challenge is giving advisers and their clients access to the right information. At the moment there’s a real lack of transparency that makes it difficult for investors to understand exactly what they’re investing in.”
According to Lonsec, while ESG investing has entered the mainstream, it doesn’t always result in outcomes that clients expect. Traditional ESG incorporates these factors into the investment process, but it doesn’t necessarily exclude unsustainable activities – or favour sustainable ones. Most approaches allow the investment into ‘unsustainable’ companies if the ‘price is right’ or corporate engagement is deemed to be positive. This does not necessarily align with investor expectations.
Tony Adams, Lonsec head of sustainable investment research, said: “Lonsec is a strong advocate of incorporating ESG into the investment process, but given the broad range of ESG approaches used by managers, it’s important that investors are aware of what it means for their own portfolio. The risk of ESG investing is that it can result in a ‘greenwashing’ of portfolios. Investors might see an ESG label and assume that it’s only investing in sustainable activities, but this is almost certainly not the case. You have to dig deeper to understand how the investment manager defines ESG, how they use it in their investment process, and how it impacts the final portfolio outcomes.”
The new ratings and reports will be made available through Lonsec’s ‘iRate’ platform, allowing advisors to understand how their investment decisions line up against the UN’s 17 SDGs, while demonstrating to their clients how their advice fits with their values and preferences.
Sustainable Platform is a quiet achiever in the ESG and SDG research and data space, globally. The business was started by Mark Andrich, a former oil and gas industry engineer and hedge fund manager with a PhD in water engineering, and his wife Anna, who has an MBA from the University of Western Australia and a financial accounting degree from New York University.
Mark had built what they believe was the world’s largest database of companies independently assessed for their sustainability by 2017. This was largely self-funded to that stage but subsequently the firm has obtained some big clients in Australia and overseas, such as KLP, the EUR 80 billion Norwegian fund, and super funds WA Super, NGS Super and boutique global equities manager Nanuk Asset Management.
Mark Andrich said in an interview earlier this year: “Growth has been pretty much by word of mouth. We have attempted to do our own sales and marketing but found there was a lot of noise around ESG.”
He says the firm is a data and information business, which does not provide financial advice. “We provide independent sustainability data and risk metrics for institutional investors to analyse alongside the financial metrics they already receive.”