Climate data informs responsible investment

Climate data is key to informing responsible investment decision making and measuring the sustainability of business practices.

Digital Nation spoke to Desiree Lucchese, head of ethics and impact at U Ethical about the role that climate data plays in responsible investment management.

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According to Lucchese, “Investors need to have a sound understanding of the companies or the securities in which you're going to invest in. Data is critical to make that judgement — judgement on valuation, judgement on earnings growth, judgement on risk preparedness across ESG.”

Despite the lack of alignment among ESG frameworks, Lucchese says that there are a wealth of data providers, academic research and broker research that can be leveraged and integrated into an investment decision making framework, and considered in line with an investor’s world view.

“This is the era of big data. It doesn't mean that we are all big data analysts, but at the same time, information has always been a critical input to address market symmetries,” says Lucchese.

U Ethical’s framework for considering a company’s commitment to sustainability considers both the material risks associated with a changing environment, as well as the company’s alignment to the United Nation’s 17 Sustainable Development Goals. The ethical investment fund uses a low carbon transition management score, among other metrics, to tell the company’s full sustainability story, she says.

“Climate data doesn't really just centre on emissions, direct and indirect, it spills over into supply chain emissions. In that sense, there is also an overlapping of materials efficiency, and product diversification with the emissions related to them. So it gets very complex, but we try to simplify it into what is the management capability of the company in line with the market and key stakeholders’ expectations.”

Lucchese says that as the climate crisis unfolds, a responsible investor must consider not only a company’s ESG position in a moment in time, or marginal improvements historically, but it must look to the future to determine if the business is tracking to meet its sustainability commitments.

“We look at what complex models are telling us within the present, so how a long term model 100 years, 50 years from now, how that model translates to the present position of a company. So that gives us a gauge to really ascertain if the company is on the right trajectory,” says Lucchese.

According to Lucchese, climate data can be used to identify investment opportunities, but to do so it must first be integrated into investment workflows.

“Systematic processes are key to a diligent and integrated, responsible investor,” says Lucchese.

“Different teams will do it in different ways. But we make sure that the different risk and ESG platforms are integrated, we have first level screens, then we extract, further investigate, add additional screens of analysis, and we go back and research to then provide an output to the equity analysts and their fixed income analysts. After that we integrate that in the equity profile of new portfolio companies.”