End of Week Notes

Corporations Behaving Badly: Does your ESG fund own Equifax?

Last week, Equifax revealed a data breach that occurred from May to July that exposed personal and financial data of an estimated 143 million people. Prior to the incident, the company had received poor grades from both Sustainalytics and MSCI ESG Research, alerting investors to the firm’s data-privacy and product-governance risks.

Equifax is an ESG “Under-performer” within its industry group, according to Sustainalytics, ranking in the lowest decile out of 93 research and consulting firms. In its analyst view, Sustainalytics noted a 2016 breach of the data of one of its clients, Kroger, saying the company could implement “regular privacy risk assessments or improved reporting on breaches and how they were corrected.” Sustainalytics also noted concerns about “product governance,” having to do with the firm engaging in practices that confuses consumers about their services. Sure enough, Equifax has offered confusing options to consumers in the aftermath of the firm’s announcement of the breach.

For its part, MSCI ESG Research downgraded Equifax to its lowest rating, CCC, last year, noting similar concerns: “Equifax’s data security and privacy measures were determined to be insufficient in mitigating data breach events” and “The company has also been previously fined for marketing practices of its credit score products.”

Based on these assessments, I would find it surprising if ESG funds held Equifax. I understand that few asset managers use ESG company-level research without vetting it and coming to their own conclusions, and certainly that there can be a difference of opinion, but when both Sustainalytics and MSCI ESG Research agree that a company is a terrible ESG performer, I’d be surprised to find it as a holding in an ESG fund.

Well, it turns out that six diversified ESG funds surprised me. Here’s a list of funds that held Equifax in their most recently released portfolios:

Corporate directors attitudes on sustainability matters

Corporate directors are starting to get the message that investors want climate-risk disclosure and more women on boards. In its annual survey of corporate directors conducted by consulting firm BDO USA, two thirds of directors surveyed said their board is now “proactively addressing the issue of board diversity.” According to the same survey, a majority of directors now believe “sustainability matters” are “important to understanding a company’s business and helping investors making informed investment and voting decisions.” In the 2016 survey, only a fourth of directors thought so.

CityWire Article Summarizes Wirehouse ESG Efforts

With a total of 45,000 advisors between them, the backing of the big four — Morgan Stanley, Merrill Lynch, UBS and Wells Fargo — is enough to make any product hit the big time. And so it is with environmental, social and governance (ESG) investing — once the preserve of institutions and family offices.

The wires should be commended here for forcing the issue and making a concerted top-down push to get ESG on platforms and in portfolios.

Each has stepped up their ESG efforts significantly in the past few years and they show no sign of slowing down, despite the lack of initial flows.

New from US SIF: Getting Started Guide for Retail Investors

US SIF has put out this guide for retail investors on getting started in Sustainable and Impact Investing.

Happy to report that Morningstar is now a US SIF member!

Have a great weekend, everyone!