Environmental, social and governance (ESG) research has become more rigorous in the past 12 months, while at the same time more analysts are incorporating these issues in their reporting, according to ESG Research Australia (ESGRA).
The organisation assesses ESG reporting for its annual awards and this year found the level of research had strongly improved.
"This year we saw a lot more detail in the research. We saw analysts really going the extra yard and really looking for an extra level of depth of information and chasing the companies up for information if it wasn't in the public domain," ESGRA research evaluation committee chair Amanda McCluskey said.
McCluskey, who is also Colonial First State Global Asset Management head of sustainability and responsible investment, said analysts had also conducted far more back-testing to find tangible evidence.
"We saw a lot more back-testing, looking for the materiality of the issues and looking for the investment signals," she said.
ESG issues had also been more widely adopted, she said.
"We were seeing a lot more of the research community getting involved in the ESG research. It wasn't just the ESG people, it was also some of the mainstream analysts and that was adding to some of the rigour as well," she said.
The winner of the ESGRA award for the best piece of ESG research by an individual analyst or team went to Hamish Tadgell and Jien Goh of Goldman Sachs for their research work "Equity Strategy: Introducing the GS&PA Structural Leaders Framework".
The best ESG broking firm as voted by investment managers went to Citi in recognition of work by analyst Elaine Prior.
The candidates were judged on integration and usability of their research, rigour, reliability and originality.
However, ESG research still had some way to go, McCluskey said.
"The area that didn't score as well was the integration and usability. [But] the committee does recognise that that is the hardest bit, so it made sense," she said.
"The biggest thing that the committee thought that was missing was the comparison on the competitive dimensions of ESG for companies, so rather than looking at the impact of ESG on the company itself, rather looking across the market in Australia, but also more globally, on the competitive dimensions that ESG created.
"There was an interesting comment that one of the things that makes it hard for those competitive dimensions is the real materiality issues to be discussed by the analysts; that's when they put their career at most risk and do they want to do it for ESG yet?"
She said the recently announced carbon tax by the federal government had not led to an increase in focus on ESG, because the statement was lacking in detail.
ESGRA started in 2009 and has grown to a membership of 51 institutional investors.
Its members include fund managers, superannuation funds and asset consultants, representing over $110 billion in active Australian equities funds under management, and total funds under management of over $600 billion.
