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Why this leading shareholder advisory firm is now studying climate change

  • Institutional Shareholder Services is buying a climate change data analytics business.
  • It provides data and analytics to asset owners and investment managers.
  • It is the third environmental data firm ISS has bought in recent years.
  • ISS has seen huge demand for climate change risk data among clients.
Pollution power plant
Robert Nickelsberg | Getty Images

A leading shareholder advisory firm is buying up environmental data and analytics companies, because its says investors are increasingly concerned about the impact climate change will have on their portfolios.

Institutional Shareholder Services said it is buying the investment climate data division of South Pole Group, a Zurich-based environmental advisory firm on Monday.

The division, formerly known as Climate Neutral Investments, provides data and analytics to asset owners and investment managers on the impact of climate change on portfolios.

ISS said the company built the world's largest database of company-level climate change data and pioneered investment carbon screening tools that can screening for climate change implications for more than $2 trillion of assets under management.

"We can come in and work with an investment manager now, and say, we have helped to identify governance risk, now we can actually build a view of the climate footprint of your portfolio and provide insight into where specifically that is coming from," ISS Chief Operating Officer Stephen Harvey told CNBC in an interview.

This would allow a manager to find some way to offset the risks or recalibrate the portfolio, he added.

Though it may be known mostly as a proxy advisory firm, ISS has been aggressively growing two other businesses: one in governance data and analytics, and another in responsible investing, Harvey told CNBC.

This is the third socially and environmentally focused firm ISS has bought — the company bought Scandinavian firm Ethix SRI in 2015, and acquired Maine-based IW Financial in early 2017.

ISS has seen "huge interest" in risks related to climate change, despite "political headwinds in the U.S.," Harvey said.

"We see asset managers who care about things like board diversity and CEO pay alignment, which are more traditional," Harvey said. "But increasingly we see some who care also about the potential impact of climate change, and whether companies are taking a sustainable approach to growing."

The firm is targeting asset owners, such as pension funds, investment managers and alternative investors, such as hedge funds.

The data can also help inform investment managers of environmental issues that might arise at a company's annual general meeting. In some cases, for example, managers may even use a shareholder meeting to raise issues around a company's environmental footprint, Harvey said.

The firm has also seen demand for these kinds of extra-financial data among investment firms trying to evaluate particular risks with a company, or some other information that might be relevant.

For example, the tools could help investors identify or filter out companies that had fallen afoul of a certain global norms.

For its proxy voting advisory business, ISS typically works with institutional investors to determine what they care about when evaluating governance issues, Harvey said.

"We already have a couple of environmental companies, now we have a company that focuses on carbon," he said. "Now we can start to place some of those signals into a custom policy a customer might have, particularly around companies they are concerned about."