Feedback from La Financière Responsable
By Olivier Johanet, President of La Financière Responsable
Work is underway in Europe and the United States on ESG (Environmental, Social, Governance) standards in the field of asset management. Responsible Finance (LFR) will contribute to this by providing feedback. Indeed, more than 10 years ago, LFR marked a pioneering position by deciding to create an ESG database, called Empreinte Ecosociale®, to base its investment decisions on quantified extra-financial data, monitored in time, and comparable in space, like the existing approach in the financial field with accounting documents. This work was very innovative since the final goal is to check the consistency of ESG data with financial data when analyzing the companies offered for investment.
The research effort thus carried out by LFR has also been greatly supported by the Public Authorities, with the award of the Young Innovative Company label and a Research Tax Credit. To ensure the solidity of the work, we have established some strong rules:
- First of all, all the primary data that we collect comes from the companies themselves. These data therefore become indisputable, a fortiori not being able to be contested by the issuers themselves;
- As a corollary, these data must be public, to prevent confidentiality from rendering them unusable;
- The annual campaign for collecting information from companies must be "partnership": we extract the data ourselves from the issuers' annual reference documents, by inserting them into a "questionnaire" that we send to the company for verification ( spontaneous information), while asking him to complete it if necessary (assisted information). This process is a privileged moment of exchange with the company allowing a good understanding of certain results, to share the retained definitions, and to identify points of dialogue (engagement policy);
- The indicators must be quantified, and the questions closed, to reduce the subjectivity of the information, often subject to numerous interpretations and therefore comments;
- Concerned about retaining a clear and recognized definition of indicators, we have used the standards often defined under the aegis of the United Nations, both in the environmental and social fields;
- To allow “horizontal” comparisons, all the companies held in the portfolio on a given date are questioned, as well as those that make up the indices on the same date (for example, CAC40, Eurostoxx 50, etc.);
- All the data collected and validated must obviously be kept in an easily accessible and secure place to allow “vertical” comparisons. Armed with these rules and tenacity, we used this database to establish the responsible nature announced to our investor clients, and which legitimizes us with issuers.
After 10 years of work, and when the subject appears on the scene, we can (and must) deliver some lessons:
- The training of actors is undoubtedly the most important effort to undertake to support the development of ESG standards. It is, in fact, called upon a very large number of concepts coming from very varied disciplines which can be used only if they are well understood;
- The national cultural differences appear very clearly, which must be kept in mind to understand the limits of the exercise;
- The possession of information is only a prerequisite, fundamental, but insufficient. Indeed, we cannot be satisfied with a simple juxtaposition of data: we must know how to read them. It is then necessary to develop deciphering arguments to derive a useful meaning from them. Thus, at Responsible Financial, the use of strategic filters, inspired by the work of Michael Porter, brought particular relief to the data;
- The data must be easily and intelligently accessible, during the analysis and monitoring of the portfolio, and then to report clearly to the investor;
- The relationship with the issuer is a key element. To join the program, the issuer must know and understand how it is used. The regulatory constraint on ESG standards alone will not be enough to create the movement.
In conclusion, we must be aware that this is a very long road, often arid, but that we must resolutely take to guarantee the seriousness of responsible investment.
Completed September 28, 2020
Olivier Johanet, President of La Financière Responsable
French version HERE