How ESG Research identifies the next big themes
At the heart of the bank’s market activities since 2006, ESG Research is dedicated to providing expert advisory services on Environmental, Social and Corporate Governance (ESG) topics.
For more than a decade, ESG Research team within Societe Generale Cross Asset Research has been providing investor and corporate clients with high-quality, value-added information, content and advisory services to support them in their ESG transitions and investment decisions. Since its creation, it has consistently been at the top of benchmark rankings and surveys (Institutional Investors, IRRI survey, etc.).
Yannick Ouaknine, Head of Sustainability Research, launched in 2006 a pioneering and differentiating approach to meet the new need of supporting clients on ESG topics. He looks back at the creation of his team at a time when investors were as of yet not that interested in such topics. “In 2006, we were one of the few brokers to create a dedicated ESG team. Our research and fiduciary duty made us a natural candidate for developing this expertise to meet the needs of clients, remembers Yannick Ouaknine. In addition to our recommendations on equities, we wanted to provide them with the necessary expertise to assess the financial materiality related to ESG criteria; that is to say, the extent at which taking ESG dimensions into account makes financial and market sense for a company.”
Despite the lack and disparity of information available on the market or from issuers not accustomed to communicating on these topics, the ESG Research team developed by taking a critical, forward-looking and pragmatic look at the evolution and transformation of our societies. “Our ability to decipher underlying trends has allowed us to advance regulation and respond to our clients’ challenges. At that time, we wrote reports on CO2 emissions, the “green share” of corporate revenues, diversity or cybersecurity. These themes have now become priorities for all actors. Anticipating and decoding is what clients expect from us. We are a sort of incubator for tomorrow’s important themes”, underlines Yannick Ouaknine.
From the inception of the team, ESG research has attracted strong interest from long-term institutional investors, including pension funds seeking innovative and impactful ESG content. Driven by the existence of financial communication standards via annual reports, the governance criterion was the best known. The main environmental criterion related issues of the time were limited to CO2 emissions, while the social criterion attracted very little interest. Over the years, governance has become a subject on which there is a consensus of interest, reinforced by European and global transparency regulations following the multiple controversies over executive compensation, golden parachutes or corruption.
Progressive media scrutiny of these topics has led clients to create their own dedicated ESG teams and specialized actors have started to appear. The notion of fiduciary responsibility in financial analysis thus started to grow. The integration of ESG data into fundamental analysis has become a source of outperformance and/or better risk management. “We have broadened our experience through our reports by collaborating with our financial analyst colleagues to integrate ESG into the valuation of companies by creating our own ESG scoring methodology based on ratings agency data,” adds Yannick Ouaknine.
Since 2018, the ESG Research team has stepped up its work to achieve the goal it set itself at its launch in 2006: make ESG criteria an integral part of the company assessment framework. “Societe Generale Cross Asset Research enhanced its offer in 2020 through the systematic integration of ESG criteria in its fundamental analysis, valuations and recommendations on equities. In the eyes of clients, the bank is a leader in this area thanks to its integrated “bottom-up” approach and its 14 years of expertise”, explains Yannick Ouaknine.
This was made possible through the ESG training of Societe Generale Cross Asset Research’s analysts. “Analysts have appropriated ESG expertise and understand the issues related to the three criteria. They have acquired a clearer vision and are able to qualify them in financial analysis, all while taking into account the cultural dimension. This is important in the understanding, weighting and integration of ESG topics, with each country having its own sensitivity to each of the criteria”, details Yannick Ouaknine.
While the pandemic crisis has been a powerful catalyst for generating a strong and unprecedented demand on the social pillar of ESG, Yannick Ouaknine notes that “for investor clients, including private bankers and certain hedge funds, ESG has now become an integral part of their analysis grid.”
For corporates, the integration of ESG into their strategies remains one of their priorities. In order to better understand and adapt to their ever-changing needs, the ESG Research team relies on its “Corporate Access” scheme, which runs conferences, roadshows and ESG events every year. “Having this dialogue with several hundred issuers allows us to validate our investment cases and to finetune our understanding of these issues", concludes Yannick Ouaknine.
Today, Societe Generale’s Markets Activities are regularly recognized with awards on ESG topics. In 2020, the Group received the "SRP Best House ESG" and "Asia Risk ESG Provider of the year 2020" awards. And this year, in 2021, the bank received the prestigious "Research House of the Year” award by Risk Magazine for the quality of its Quant research and the integration of ESG factors.