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Invesco CIO: ESG data can only get you so far

Invesco CIO: ESG data can only get you so far
 Stephanie Butcher, chief investment officer at Invesco

Data on the environmental, social and governance factors affecting a company is “only one part of the process” when assessing the sustainability and responsibility of a firm, according to Invesco’s chief investment officer.

Stephanie Butcher, who was appointed to the helm of Invesco’s investment department in January, told FTAdviser that ESG data was often “backward-looking, slow to update and leans heavily toward the ‘E’ and the ‘G’, but struggles with the ‘S’.”

She said: “When analysing the ‘social’ aspect of a firm, there are certain things you can look at from a data perspective, such as flags in supply chain management, workplace safety data and employee retention rates.

“But that only gets you to a certain level. It gets to the point when you need that engagement with management teams and board members to get a more holistic sense of the ‘S’ in ESG.”

Ms Butcher added that access to a company was one of the benefits of being active investors, as you could “challenge” and “encourage improvements” as a shareholder.

She said: “It is that layering of qualitative and quantitative research that feeds into an assessment.”

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Ms Butcher said Invesco did not impose a “house view” on any issues within ESG and would never tell fund managers to “not invest in this”.

But she added: “Ultimately, we’re asking our fund managers to be fully away of all the issues — a holistic view of all the issues — and the material factors of the value of that business over time.

"Individual fund managers will have different views. One fund manager may think that a company looks really cheap and they they are willing to own it, but others may think certain ESG risks are not priced into a business.

“The way people talk about ESG is like it is an adjunct. But it is so integrated into the way you look at the valuation of a business, it’s almost false to look at it as a separate element.”

ESG investing has boomed in popularity in recent years as fears over climate change have led investors to consider the impact of their money and as a growing number of millennials have begun investing.

Recent data from the Investment Association shows inflows into ESG funds have quadrupled in 2020 so far, with £7.1bn invested in such funds over the first three quarters of this year compared to £1.9bn.

Proponents of ESG investing often argue exactly that ESG risk is, in fact, investment risk, as those firms that do not adhere to ESG standards are less likely to be sustainable businesses.

Ms Butcher said the idea that the sustainability of a company — which underpins all aspects of ESG — had always been part of the process of deciding whether a firm was a good investment.

However, the increased interest in ESG from consumers and the greater shifts in society meaning that the profit motive could no longer be the “pure driver” of a business had increased and refined the level of scrutiny in this area, she said.