‘You need to focus on the ones that are relevant’: targeting inclusion in ESG indexes

Nov 30, 2020
Number of indexes with ESG criteria rose 40 percent in 2020

Inclusion in sustainable indexes is of growing importance to IR teams but you have to pick and choose your targets, said Nuria Pascual, finance director and IRO at Grifols, during an IR Magazine Webinar last week. 

The Spanish healthcare company recently earned a place in the Dow Jones Sustainability Index (DJSI) Europe, picking up the maximum score for both its environmental and its social reporting. 

Pascual said joining the DJSI is a key ‘milestone’ after three years of producing an integrated annual report. ‘But you cannot try to be in every single index,’ she said. ‘You need to focus on the ones that are relevant, maybe for your industry, maybe for your geography… or even for your specific shareholders.’

The number of ESG-focused indexes has ballooned in recent years amid huge demand from investors. A report released last month by the Index Industry Association finds a 40 percent rise in indexes using ESG criteria compared with 2019. 

Unsurprisingly, IR teams are keen to be included where possible to boost investor interest and liquidity. The process can be time-consuming, however, given the need to review different index criteria and in some cases fill out lengthy questionnaires.

Pascual suggested IR teams use the surveys to learn what additional information they might want to provide to the market. You find out ‘what else they are valuing, what else you could do and what else you could focus on,’ she said.

Speaking on the same webinar, Sèbastien Senegas, head of Southern Europe at asset manager Edmond de Rothschild (EDR), said ESG index inclusion helps companies garner more attention and investment. ‘There are more and more flows every day into ESG and SRI-friendly products [and] companies,’ he said.

He noted, however, that investment decisions at EDR are ultimately based on the firm’s internal model, rather than any external data point. ‘We have a fully dedicated team [and] an internal tool we use in order to give a rating to companies,’ he explained.

‘We have a recent example of a company that had quite a decent ESG rating by external providers but our internal model was not giving a good rating, so we decided not to invest – and it was a good decision.’ 

The growing number of both ESG indexes and sustainable reporting frameworks is proving frustrating for issuers, said Manuel Enrich, chairman of Spanish IR association AERI and chief IRO at AHORA Asset Management.

‘It’s very difficult for an issuer – and for an association – to advise on what you have to follow or do,’ he said. In terms of frameworks, he said companies should investigate the Global Reporting Initiative Framework, SASB, the Task Force on Climate-related Financial Disclosures and the concept of integrated reporting because investors have indicated that they value those methods. 

Enrich pointed out that there may also be sector-specific reporting initiatives to take into account. For example, his firm is focused on real estate and therefore must follow the Global ESG Benchmark for Real Assets.

Click here to listen to a recording of the webinar.

 

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