La Financiere Responsible is a specialist ESG asset manager with an award-winning approach to integrating financial and extra financial analysis. Investors and analysts are sometimes unsure as to what constitutes extra financial information, and how it should be interpreted. Here LFR President Olivier Johanet explains why accurate measurement of ESG factors is so important to the sector, and to investors.
Any scientific endeavour is based on Measurement. Scientists and researchers do not embark on any piece of work without a system of measurement, so that the results they seek or reach can be authenticated and critiqued. Measurement is the basis of the discussion and the advancement of science.
Measurement techniques are well established in the ‘hard’ sciences but in the last 50 years they have become more common in ‘soft’ sciences like Sociology, or even History. It would be unthinkable for Socially Responsible Investment (SRI) to seek to escape this trend, especially when regulators and research institutions increasingly adopt it.
A strong commitment to SRI measurement by all those involved underlines the rigour of any approach, and helps its wider adoption. La Financière Responsable (LFR) has always been convinced of the need for a disciplined investment process based on true conviction, a strategy recognised by French authorities in the form of Research tax credits.
For more than 10 years, LFR has compiled its own data set which has recognisable value, especially for those companies most directly concerned or most sensitive to ESG issues. LFR has an absolute rule that all data is provided by the companies themselves, ensuring it is credible and comparable for those firms and any third parties.
LFR now applies more than 120 ESG indicators to170 listed European companies in its investment universe. This significant data collection and organisation has allowed major advances in portfolio management techniques, including the integration of extra-financial data, alongside financial considerations, in investment decisions. This solid analytical foundation has undoubtedly resulted in improved growth in assets under management. In addition, the initiative by French policymakers to mandate proper measurement and explanation of any investment process, through Article 173 of the law on Energy Transition and Green growth, facilitates serious and constructive community and stakeholder engagement.
It seems to LFR, given its experience in this field, that now is the time to demonstrate, with supporting indicators, what Measurement brings, and the limits or dangers that it may entail if analysis is too fast or too directional.
Drawing from its Ecosocial Footprint (Empreinte Ecosociale®) database, LFR will start publishing a series of short Blogs (accessible via www.la-financiere-responsable.fr/blog) showing how selected ESG indicators are defined, what they represent and how they are interpreted. LFR is also ready to engage with interested parties on any aspect of this analysis.