InvestmentFocus on the

Clarity on ESG investment

The global Covid-19 pandemic and climate crisis has created a surge for resilient, long-term investments. We’ve now reached the tipping point of ESG being essential and mainstream practice for businesses that want to analyse the governance strength of a potential investment. However, clarity on ESG is still in short supply, and it can lack context and definition. The market needs a greater sophistication of measurement and understanding of ESG to do it right.

The challenge is creating a framework for businesses to represent what they are really doing around ESG. Developing sustainability standards that are both fit for purpose and that hold up to industry scrutiny requires specialist expertise. That’s where TDi can help.

Focus on the fundamentals

TDi Sustainability works on both sides of the ledger. We help businesses present themselves in the best way for investment. And we also help investors to separate reputational risk from investment risk by focusing on the fundamentals of the impact of a business. Our approach and experience help financial analysts be more sophisticated in their research methodology, by looking at the full picture, both financial and environmental, in the round.

TDi Sustainability works with standards-setting organisations, certifiers, multi-stakeholder groups, and industry associations across a wide range of sectors – as well as a leading independent agency. Our effective and innovative due diligence, assurance and certification systems set the environmental, social and governance performance standards for producers and suppliers.

Avoiding missed opportunities to invest or raise capital

Banks and asset managers are being told to divest their funds from coal and fossil fuels, but where do they put them instead and what guides these decisions? They must rely on ESG ratings and screening criteria, but at the moment these lack the necessary context.

The hundreds of different ESG ratings and rankings can be confusing, especially for ‘passive investors’, who are reliant on set guidelines that only tell part of the story. In contrast, ‘active investors’ have more freedom to investigate the fundamentals of a business. However, investment questionnaires are largely based on risk management, rather than investment opportunity, so it’s difficult to understand the true impact in relation to ESG.

With TDi Sustainability, you will gain more accurate insight into what is actually a viable investment, despite they might score poorly – and which assets look promising on paper, yet may hold risk in the future. Understanding the context provides the third dimension for investment.

Assessing the impacts of ESG-related public allegations

TDi Sustainability partnered up with Denny Ellison, a traditional fundamental research provider, to develop a unique equity research valuation methodology for quantifying the investment risk associated with ESG-related public allegations on companies that operate in sectors with significance ESG contribution.

The methodology provides a framework for investors to make sense of the prolifereation of ESG datasets, bridging the gap between ESG data and fundamental research, helping them making informed decisions when investing in the so called ‘sin stocks’.

The framework highlights the risks from public allegations, which can depress the valuation and returns, but also the potential upside to the share price coming from the company’s ESG practices to mitigate thse allegations, i.e. increased disclosure, commitments, and implementation on specific ESG matters, hence revealing their real value to investors.

Find out more about the applications of this methdology here.