SOON AFTER Bloomberg's sustainability director, Curtis Ravenel, launched an initiative to green the company's operations in 2006, he began to wonder: How do other businesses measure their impact on the environment? Do they report it to the public?
Before long, he found himself perusing corporate sustainability reports, released by many firms not just to brand themselves as "green" but also to cater to socially responsible investors. A lightbulb went off: He asked his colleagues whether Bloomberg, whose business is based on disseminating corporate data to the financial sector, collected this pile of information for its clients. The answer was no.
It turned out the company had been ignoring a potentially valuable area. "It was something our European colleagues had pushed for some time, but socially responsible investing was too small [a customer base]," Ravenel, 42, explains. "It just never made it up to C-level."
Well, he thought, I'm C-level.
Ravenel's curiosity had drawn him into an expanding corner of financial analysis called environmental, social, and governance, or ESG. ESG traditionally hadn't been factored into invest-ment decisions. At most, it was viewed as "extra-financial" data — whether the company has a human-rights policy, or the percentage of women or minorities on its board.
But to its proponents, ESG is less concerned with social responsibility than with profits. If a company treats its employees well, for instance, it should have less turnover and lower HR costs; if a manufacturer gets serious about safety, it can avoid expensive lawsuits. There's increasing evidence — and, correspondingly, a growing belief among portfolio managers — that companies taking such factors into account are forward-thinking and well managed, and therefore places investors should consider.
The biggest indicator in the ESG matrix right now is environmental impact. "The financial community likes the E because it's easy to quantify," Ravenel says. "And within E is the big C: carbon." And within that C is another C: cost. Some European countries, such as Sweden and Denmark, tax the carbon emissions of companies with offices there. The EPA's rules to regulate CO2, which went into effect January 2nd, will affect many American balance sheets. If companies wake up one day to find it costs $15 to emit a ton of CO2, a financial analyst considering ExxonMobil would see it emitted 128 million metric tons in 2009. That adds nearly $2 billion to the oil giant's operating costs — hardly extra-financial data.
Ravenel used this kind of argument to persuade Bloomberg to add ESG data to its terminals. His team spent countless hours assembling and entering data into the system (often by hand) before going live in July 2009. Today, when Bloomberg's 300,000 market-savvy customers turn on their terminals in the morning, they can see ESG data such as greenhouse-gas intensity per sales, water usage, employee fatalities, toxic discharge, and more than 100 other indicators as part of their basic package alongside the rest of the Wall Street alphabet soup. (The ESG data does not cost extra.)
And investors are using it: In the second half of 2010, 5,000 unique customers in 29 countries accessed more than 50 million ESG indicators via Bloomberg's screens — a 29% increase over the first half of last year. "We expect that trend to continue," Ravenel says.
Recently, Goldman Sachs, Deutsche Bank, UBS, Merrill Lynch, and Credit Suisse launched divisions to analyze ESG data from Bloomberg and its ESG competitors. (A number of these competitors have bought one another or merged in the wake of Bloomberg's entry into the field.) "We feel there's enough quality data out there now that we place it on our platform in a variety of ways and from a variety of different vendors," says Bruce Kahn, senior investment analyst of Deutsche Bank Climate Change Advisors.
To Ravenel, this is not only a business success but also potentially an environmental one, because what's measured gets managed. If analysts are paying attention to ExxonMobil's carbon-dioxide use, then the company may try to reduce its emissions — and maybe create a product that enables other companies to reduce their emissions. "I saw the potential for us to have an impact exponential to what we'd been doing on the operating side with making Bloomberg greener," Ravenel says. "This would dwarf anything we could do to reduce our footprint."
"Every Wall Street analyst has a Bloomberg and looks at it every day," says Adam Kanzer, a managing director of Domini Social Investments, a pioneering shop for socially responsible investing. "Analysts are going to say, 'If Bloomberg thinks this is important, maybe I ought to be paying attention.' "
Companies have begun to collect environmental data more vigilantly — ostensibly because it helps them identify ways to cut costs. Frank Mantero, head of corporate responsibility at GE, says the company has saved $150 million since 2005 by limiting its emissions. Private equity firm KKR estimates that eight of the companies in its portfolio pocketed $160 million of savings in two years after eliminating 345,000 tons of CO2 and 8,500 tons of wastepaper.
In February, Ravenel raced to finish Bloomberg's ranking of banks based on their green credentials. In a rare moment of calm, he thought about how far ESG has come. "It's gone from us pushing ESG to customers to us getting questions on how to use the data," he says. He laments that not all of Wall Street is yet on board. "ESG ought to be in SEC-required company filings, and until it is, it won't be viewed as material by a lot of people. "Of course," he quips, "a lot of the financial data in there now aren't material either."