Depositary receipts - Green Issue

Published: July 6, 2015

Michael O’Brien, BNY Mellon's senior corporate governance specialist discusses ESG and the bank's engagement of  Sustainalytics.

Large financial institutions have been slower than others to see the benefits of analysing environmental, social and governance (ESG) risk when making investment decisions. There are growing signs, however, that the banks are coming around.

In mid-June, Goldman Sachs Asset Management became the latest global investment bank to appoint a head of ESG, following in the footsteps of Investec and Bank of America Merrill Lynch. The Banking Environment Initiative, a University of Cambridge-based working group that aims to push the banking industry in a more sustainable direction, has well-know names such as Standard Chartered and Deutsche Bank among its members.

Though it’s clear that the awareness is there, actual product and service offerings are still pretty thin on the ground. Securities such as ESG- and green bonds are starting to gain popularity, with Lloyds issuing a £250mn version of the former in March, but these are very much products in isolation and not a sign that ESG is becoming embedded in investment decisions.

On that front, a recent announcement by BNY Mellon's Depositary Receipts (DR) division looks like a big step in the right direction. The bank has recently unveiled that it is engaging the services of research firm Sustainalytics to help their DR issuers understand how they measure up. Clients will have access to Sustainalytics’ research and ratings as well as custom reports on the ESG compliance of different DR issuers. Clients will also be able to consult with in-house industry analysts who can answer any further questions.

Senior corporate governance specialist at BNY Mellon, Michael O’Brien, was in London for a few days in June. He spoke to EMEA Finance about the partnership with Sustainalytics and what else BNY Mellon is looking to do in the ESG space.

EMEA Finance: How did the partnership with Sustainalytics come about?

My focus has been on the governance side since I got to BNY Mellon in 2010. We knew from a macro point of view that this was growing, but we started getting more client queries on it so it seemed like right time to take our first steps into the S and the E space.

A natural first step seemed to be educating our clients better. We conducted a comprehensive look at the different ESG ratings companies and ultimately we settled on Sustainalytics. They had the best global coverage of our DR clients - that was a big part of it - and I conducted some very informal interviews with investors asking them who they use and Sustainalytics was the answer I got most. The investors who were using it were among the largest asset managers in the world; we wanted to emphasise that the reason this research is important is not just that it has a lot of widespread use but that it’s being used by such organisations. These ratings carry a lot of weight. 

EMEA Finance: What does it measure?

They have around 150 different data points which they use to measure a given issuer’s ESG performance. Of those, not all are relevant for every company. Generally you’ll see that they consider 70-80. One of the key things that issuers need to know is that this is all based on publically available information – Sustainalytics doesn’t send out surveys like some of the others do. We want to give our clients the knowledge so they can decide what to do. There can be differences between what they think is material and what Sustainalytics thinks is material but at least they know this is a component that they are evaluated on and if there’s a gap there, they can decide whether or not they want to fulfil it.

This content is only available to our subscribers. Please click here for details of subscription plans or to request trial access.