OWLshares’ CEO Ben Webster regards environmental, social and governance (ESG) research as a data edge to help investors. OWLshares is an ESG analytics and indexing company, set up five years ago.
“We take the ESG data across hundreds of peer groups, analysing that data to create insights so that others can understand how to apply ESG to the companies that they are holding and the strategies they utilise,” Webster explains.
“Originally we were going to create an ETF company and we have that infrastructure. A couple of months into that business, one of our advisers introduced us to impact investing. Helping to make the world a better place may sound overly sentimental for the financial industry, but my partner and I saw this as a way to pursue our entrepreneurial dreams while making a positive mark on the world.”
Within ESG, SRI or impact investing, Europe leads the US, Webster believes, but it is now taking off in the US at the institutional, product issuer, and individual investor levels in the US.
“The impasse is at the adviser level,” Webster says. “Those that work with individual investors, the financial consultants or brokers, are behind the curve operating on the assumption that introducing sustainability into their portfolios hurts returns.”
Webster explains that ESG investing is a very subjective area. “Opinions about what’s sustainable and socially responsible vary from person to person. We have to separate socially responsible investing based on our individual values from investing using ESG data to better understand risk and opportunity at the security level.”
Sometimes investing just through a value lens can hurt returns and confuse investors that ESG was the cause. For example, the early to mid-2000s were a time when taking fossil fuels out of a diversified portfolio could have easily cause that portfolio to have underperformed.
Webster says: “ESG is data and research into how companies operate, for example data about carbon emissions, treatment of employees, processes to prevent fraud, and so on. Those are facts about company operations and the results of those operations. Some of those facts can be materially relevant to the positive or negative – a good portion of ESG research is trying to identify data that will have a positive impact on performance.
“A lot of ESG factors, for example pollution reduction or workplace diversity, have social implications that can help profits but can also help the world. With that said, not all ESG metrics are materially relevant to all industries; it is important for investors to understand which ESG metrics are relevant to the companies they are evaluating or holding.”
Eventually, Webster believes that everyone will invest in impact products that use ESG data. “Over time, more and more studies will come out validating that ESG data is materially relevant if applied correctly. As this knowledge becomes more common place, investors en masse will allocate to products and strategies that use ESG data instead of alternatives that don’t.”
