ESG Investing Conference

Impact Investing Conference

ESG Investing

RepRisk: Making sense out of mountains of ESG data Environment AnalystRepRisk: Making sense out of mountains of ESG data Environment AnalystRepRisk: Making sense out of mountains of ESG data Environment Analyst

Impact Investing Conference

Impact Investing Forum 2022

https://impactinvestingconferences.com/

London. April 28-29, 2022.

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Environment Analyst discovers from one of the sector’s pioneers if the over-attention to ESG is a reality. Everyone is interested in ESG. Everybody wants data. Every government and industry body is creating new guidelines, regulations, promises, and commitments. It is difficult to keep up with all the important information that is out there. “Yes. Alexandra Mihailescu Cichon is RepRisk’s executive vice president of sales, marketing and sales. She is based in Zurich. “There are so many daily developments within ESG – whether they’re regulatory, voluntary frameworks or developments from market participants or the financial sector. It can be overwhelming. The demand for ESG data is higher than ever before. This is despite the fact that there are more companies offering this information. That must make for a difficult market to compete in, even for a twenty-something-year-old company. “We are an ESG-data science company. We offer qualitative and quantitative research that is based on ESG risk. Everything we see in our world, including ESG, is viewed through a risk lens’. RepRisk was born from a background in credit risk management and project financing. Mihailescu Cichon, who has been with RepRisk for eight years, has managed RepRisk’s global sales, partnerships, client relationships management, sales operations, marketing & communication teams, as well as its worldwide distributed sales, partnerships and client relationship management. Before joining RepRisk she was a member of Credit Suisse’s global sustainability affairs team, where she focused on green business opportunities, corporate accountability reporting, employee engagement, and environmental and social risks management. She explains that RepRisk was founded over 20 years ago as a financial sector risk consulting firm. “In 2006, a bank asked us to do a consulting assignment. We were asked to create a list of approximately 100 companies with severe human rights and environmental issues that could pose a risk to our client. RepRisk developed a system to identify companies at risk and a method to assess them using rules-based methods. Mihailescu Cichon says, “When we finished that first consulting assignment for that bank, we realized that we had compiled a useful and interesting collection of information that could be useful to other banks and financial professionals.” “It was then that I had the idea to offer this type of product or service on a professional level. RepRisk’s flagship product was initially created to be a tool for due diligence for banks, insurance companies and asset managers – all key players in the financial industry. RepRisk was aware that these organizations would already be undertaking their own due diligence efforts, as well as mining a lot proprietary information and data from their clients. She says, “We knew that our dataset should contain what the banks and asset mangers didn’t know.” “We provide our unique ESG Risk perspective using data that we have gathered from outside the company. Not from company disclosures or company-provided information, but from sources and stakeholders outside the company. The methodology was used by the firm to complete its first consulting assignment. The firm then created a business around it, an online database for due diligence that launched in 2007. “We now work with over 450 customers, including more than 80 banks, many insurance companies, asset managers and asset owners. We also have a variety of non-financial corporates that use our data to assess, monitor, and identify ESG risks in their businesses.” Many aspects of ESG have been defined through voluntary frameworks over the years. It’s now more about regulatory disclosure. Our data set is also used by companies to ensure compliance with international standards for ESG frameworks. Reprisk also provides current data that can be used by companies to monitor and assess reporting to prevent greenwashing. “Yes, absolutely,” concurs Mihailescu Cichon. “Greenwashing is a hot topic these days. We help our clients evaluate whether companies are “walking their talk” on ESG commitments. We don’t tell our clients, “Hey! This company has a climate change or human rights policy.” Information from within the company is not what we consider. We look for specific information from outside the company. “We are interested in, for instance, what are the NGOs saying regarding a company? What are the research firms and think tanks publishing about this company? What are the media saying about this company? It’s a wide range of stakeholders and sources that help to assess how a company does business on the ground. How do they approach issues like climate change or human rights? There are many companies that provide ESG data today, and more every day. What makes RepRisk’s product and service different from the rest? “You’re absolutely correct, there are many players in the market, some of whom have been around a long time and others who are just starting to emerge,” says Mihailescu Zichon. “There are many ways that we are different, however. I like to imagine two hypothetical buckets of providers to describe our USP. One bucket includes traditional, analyst-driven providers who primarily focus on public companies and provide an ESG rating based primarily on company provided information. “The providers in bucket two are technology-based and fully AI-driven organizations. These companies are focused on speed and relevancy, providing instant, real-time data. RepRisk is the only hybrid in this market. We combine the best of both the old and the new. The company uses AI (machine learning) to find and evaluate information as accurately as possible. It then uses a team of more than 100 analysts to curate the AI-generated data. “The curation element is very important. Our field professionals can become overwhelmed by information. Clients expect RepRisk to allow them to log in to RepRisk to quickly find the information they need to make informed decisions. We update this data daily and do so in 23 different languages. Mihailescu Cichon stated that RepRisk is the only ESG provider to cover private companies, infrastructure projects (such as bridges and tunnels, factories, pipes, etc.) as well as companies in emerging or frontier markets. Reputational risk Companies can now live or die on their reputation. Non-compliance with regulatory requirements is more serious than it was 20 years ago. Information travels around the world at the click of an electronic button. Mihailescu Cichon recalls, “There’s one picture I’ll never forget.” “In 2013, a large factory in Bangladesh was destroyed. It was one of those pivotal moments in ESG. People in San Francisco were already discussing the tragedy before the authorities knew anything. People were taking photos with their phones and uploading them to social media in real-time. Although such tragic situations can be devastating for the reputations of the people involved, the increased awareness of ESG topics can be achieved through immediate and global exposure in public forums. ESG in insurance Insurance firms are all about risk management. This impacts their core business. They are known for being long-term thinkers and long-term investors. The insurance industry facilitates everything that happens in the world. Many of these issues can pose very serious ESG risks. How did they manage to get by them so long? “That’s a great question. Two things are required to get anything done: financing and insurance. While banks have been very progressive and have been integrating ESG assessments for many years, their counterparts in the insurance industry seem to be somewhat behind. Perhaps it’s because the insurance sector operates a little less under the radar than banks. She continues, “Interestingly,” she says, “the investment arm of the insurers has been more rapid to move forward with ESG than their underwriting arm, even though the core business is risk [as discussed in a recent EA Article].” This could be due to the growth in investment guidelines like the UN Principles for Responsible Investment, which are focused on ESG and investments. “I find it fascinating that sometimes there is a disconnect between these two divisions of a company. We have been reaching out both to existing and potential insurance clients as a result. We work in tandem with the investment and underwriting arms to engage with both. There is still much to be done, but it would be easier to make progress if underwriters could learn from the experiences of their investment colleagues. Mihailescu Cichon also noted that ESG metrics are presented in a standardised format. There is a lot happening simultaneously. It will be very different if we have this discussion in a year or two. We’ll see that there has been a lot of progress. RepRisk’s job will be easier now that most of the disclosure and reporting activity is regulated and made mandatory. One could also infer that data collection is difficult because of the lack of standardization. This is due to disclosures and reporting being presented using so many different formats. Mihailescu Cichon says “Yes,” and that there must be minimum standardization or global or regional understanding of ESG metrics. We can’t go forward without clarity and comparability, which is what this market is looking for. How close are we to establishing a standard? “I believe it will take 12 to 18 months. I believe that the US and Europe will have their visions clear by 2023. This day is eagerly awaited by those of us who collect and analyse data for a living. (C) Environment Analyst. You may circulate web links to our articles, but you may not copy our articles in whole or in part without permissionCORRECTIONS: We strive for accuracy, but with deadline pressure, mistakes can happen. If you spot something, we want to know, please email us at: news@environment-analyst.com

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ESG Investing Conference