Environmental, social and governance (ESG) is increasingly becoming a factor in investment decisions as socially conscious and connected investors use ESG criteria to help decide where to put their money.

It certainly played a role in global fund manager Blackrock’s decision in January this year to make climate change a priority across its investment funds and dump thermal coal from its portfolio.

JP Morgan was also given a wake up call after a whopping 48.6 per cent of its investors voted in support of a resolution calling for the largest bank in the US to issue a report “outlining if and how it intends to reduce the greenhouse gas emissions associated with its lending activities in alignment” with the goals set out in the Paris Agreement in May.

Its competitor Morgan Stanley recently committed to start disclosing how much its loans and investments contribute to greenhouse gas emissions.

Locally, the Australian Prudential Regulation Authority is starting to put pressure on super funds to start addressing ESG issues, though a June report found that Australian companies are lagging behind their international peers in reporting on environmental sustainability.

Meanwhile, financial advisory firms have found that the COVID-19 pandemic has actually increased investor interest in ESG-oriented investments.


Making it easier to track ESG scores

The rapid growth of ESG as an investment criteria has led Bloomberg to launch its proprietary ESG scores.

Initially it will provide environmental and social (ES) scores for 252 companies in the oil and gas sector along with board composition scores for 4,300 companies across multiple industries.

“ESG data is critical to the investment process. We see an opportunity to provide transparent and complete scoring methodologies along with the underlying data in order to support investment and finance professionals make informed decisions,” Bloomberg Sustainable Finance Solutions global head Patricia Torres said.

“By providing transparent ESG data and scores, we are helping investors decode raw data that is otherwise hard to compare across companies.

“For corporates, these scores offer a valuable, quantitative and normalised benchmark that will easily highlight their ESG performance.”

Bloomberg’s decision to kick off its ES scores with the oil and gas sector is due to the typically stronger disclosure data from these companies.

Oil and gas companies also account for more than half of carbon dioxide emissions related to fuel combustion and generate 15 per cent of global energy-related greenhouse gas emissions, according to the International Energy Agency.

The ES scores provide a data-driven measure of corporate environmental and social performance that investors can use to quickly evaluate performance across a range of financially material, business-relevant and industry-specific key issues.

These issues include climate change and health and safety, and assess company activities relative to industry peers.