16 But regulation around ESG is now taking shape. One striking widespread. As reported by a large accounting firm , most example is the introduction in August 2015 by the French large listed UK companies now publish comprehensive government of a law on energy transition and green growth corporate social responsibility (CSR) reports, while at which carries mandatory ESG and climate change reporting the turn of the century, only a small proportion of them 12 for listed companies, banks and institutional investors. had environmental policy statements. Also, many large corporations want to be seen as increasing their positive Index publishers have developed contribution to society by being active in CSR – regarded as benchmark indices incorporating ESG synonymous to ESG but from the perspective of the issuer. 06features. Initially, the focus was on ESG-related company data are much equity markets, but ESG bond indices have followed. Many indices can be customised, such as more readily available now, and of for thematic exchange-traded funds, but they may not be 09better quality. Information is still being fully comparable with more encompassing market indices. collected individually by asset managers For example, a focus on high ESG-rated companies may and service providers, but there are significant initiatives introduce differences in allocation in favour of a larger to standardise non-financial information. Bodies such as size and higher rating quality. Some market participants Sustainability Investor Forums (SIFs), the International therefore advocate the use of “smart beta” ESG strategies Integrated Reporting Council (IIRC), the Global Reporting that combine an ESG theme with the financial objective of Initiative (GRI) and the Sustainable Accounting Standard retaining exposure to rewarded risk factors while being well Board (SASB) are all pushing for mandatory reporting 13. standards of non-financial material information. diversified Collecting data and analysing an issuer’s The interaction between companies and ESG attributes can be hard work. Some investors has become two-way, with large 07asset managers have hired teams of ESG 10 investors and asset owners keen to engage specialists, but many rely on dedicated with issuers on all ESG-related topics. This ESG research providers. ESG analysis often evaluates engagement by investors has existed for a long time, in individual companies, but such scoring of mutual funds particular in the USA, but has been highly focused on has also been introduced by fund research companies such governance issues and proxy voting. Engagement is also a 14 15 17 as Morningstar and MSCI . Their approach currently relatively new phenomenon in Europe. In a recent study , consists of determining the ESG profile of a fund based Sustainalytics estimates that the European engagement on the ESG ratings of its underlying investments. This and voting market has grown to the point where over €6 industry is new, growing fast, and also showing signs of trillion of equity market capitalisation is concerned, up from consolidation as large investors require consistency of €118 billion in 2002. approach across a broad universe of issuers globally and also across the multiple dimensions of E, S and G. These developments, taken together, lead to a single inescapable conclusion: the trend towards sustainable The attitudes of bond issuers, too, have investing is not just a passing fad, but a movement that changed markedly. While ESG disclosure has brought, and will continue to bring, fundamental and 08used to be handled by corporations’ sweeping changes to the investment landscape. investor relations department upon request, ESG transparency and pro-activeness is now 12 See https://www.legifrance.gouv.fr/eli/loi/2015/8/17/DEVX1413992L/ jo#JORFARTI000031045547 13 See for example http://www.scientificbeta.com/#/documentation/latest- 16 See http://www.ey.com/Publication/vwLUAssets/EY-tomorrows- publications/scibeta-low-carbon-multibeta-multistrategy-indices investment-rules-2/$FILE/EY-tomorrows-investment-rules-2.0.pdf 14 See http://www.morningstar.com/company/sustainability/ 17 See http://www.sustainalytics.com/sites/default/files/engagement- 15 See https://www.msci.com/esg-fund-metrics blackboxofvaluecreation-2016.pdf 17