InvestmentFocus on the

Clarity on ESG investment

Accelerated by Covid-19 and the climate crisis, the market is experiencing a surge in demand for resilient, long-term investments. We’ve now reached a tipping point whereby ESG is recognised as an 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. The market needs more sophisticated measurement and deeper understanding to get it right.

The challenge for business is to create a framework that truly represents and evaluates the ESG efforts that are being made. Developing sustainability standards which 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.

TDi Sustainability works with standards-setting organisations, certifiers, multi-stakeholder groups, and industry associations across a wide range of sectors. Our effective and innovative due diligence, assurance and certification systems set the ESG 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, which can make it difficult to understand the true impact in relation to ESG.

With TDi Sustainability, you will gain more accurate insight – discerning between investments that could actually be viable despite poor data scores and those which 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 has partnered 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.