Analysis: S&P Dow Jones bids for Trucost as environmental disclosure gets serious

Acquisition comes in the context of major shifts in climate disclosure

S&P Dow Jones Indices’ £14m (€16.1m) offer for Trucost, the UK-based environmental data house – exclusively reported by Responsible Investor today – comes as environmental disclosure is assuming ever greater importance in the ESG sector and the investment ‘mainstream’.

It comes in the context of major initiatives such as the high-level Task Force on Climate-related Financial Disclosures (TCFD) and France’s climate disclosure law (‘Article 173’). This shake-up is already leading to a new landscape of environmental disclosure and increasing demand for data and analysis. At RI Europe earlier this year, Julia Haake, Director International Business Development at ESG analysis house Oekom claimed Article 173 had implications for more than 1,000 investors, resulting in a flood of RFP for carbon footprinting and environmental data services. Absorbing Trucost will ensure that S&P Dow Jones is very much at the centre of that.

S&P Dow Jones Indices is a joint venture between S&P Global (the former McGraw-Hill) and derivatives giant CME Group – the operator of the Chicago Mercantile Exchange and Chicago Board Options Exchange (CBOT).

Despite being a well-respected player, Trucost has struggled to generate profits as a business, although its clients have included the likes of CalSTRS, RPMI Railpen, Legal & General Investment Management, UBS and many more. In 2013, the Environment Agency commissioned Trucost to analyse the environmental reporting and disclosure of FTSE All-Share companies.

This new relationship with S&P – if the deal concludes – should give it a sound berth. RI reported earlier that Trucost was seeking a “big player” as a potential suitor … and they don’t get much bigger or mainstream than S&P.

The sale also means that the likes of Bob Monks, the governance pioneer who founded Institutional Shareholder Services, and Richard Bennett, the ex-CEO of The Corporate Library and GMI Ratings, will no longer be shareholders. They are focusing their attention on their new venture – engagement boutique ValueEdge, which Bennett founded and which Monks chairs and which also involves fellow governance figure Nell Minow.

Trucost’s alliance with S&P is not new: the pair have been collaborating since 2009, during which time they have worked on around 30 environmental indices. But Trucost also has a long-standing working relationship with S&P DJI’s rival FTSE and if the acquisition goes ahead this tie-up could be under scrutiny.The sale price has raised eyebrows but it is scarcely material in the context of S&P Global’s 2015 revenues of more than $5bn. What the New York-listed giant is buying is a seat at the table of environmental disclosure and content potential. It is also, perhaps, a neat way of taking Trucost out of the way of any competitor firms eyeing it for the same reasons. As we have reported, it is understood that more than one firm was bidding on Trucost.

S&P Dow Jones says it will develop the Trucost brand and that it attaches “great importance” to the “skills, expertise and knowledge” of Trucost’s existing management and employees. Trucost’s 73 staff will join the wider S&P Global’s 20,000 staff globally.

There are precedents for a major finance player taking on a much smaller ESG outfit. For example there was Asset4’s acquisition by Thomson Reuters, Bloomberg buying New Energy Finance and of course MSCI’s $1.55bn takeover of RiskMetrics back in 2010.

That’s not to say that S&P DJI is not already part of the ESG landscape. It already works with RobecoSAM on the annual Dow Jones Sustainability Indices (DJSI) review. They collaborate on the S&P ESG Index Series and the Pan-Europe Developed Sovereign Bond Index.

Indeed, in this year’s annual report, SP& Global’s President and Chief Executive Officer Douglas Peterson noted how ESG criteria were receiving increasing attention from long-term investors. “By balancing good corporate governance, environmental risk and strategic corporate citizenship all companies can derive sustainable long-term benefit without sacrificing corporate performance in the short term,” he said – noting how it launched the S&P Long-Term Value Creation Global Index. “We are proud of this initiative and the interest it has received,” Peterson said, adding: “We all have a role to play to encourage public policies and corporate decisions designed to achieve long-term value creation.”
The S&P Global board incidentally includes a certain Sir Win Bischoff, the banking grandee that chairs the Financial Reporting Council and who is a leading voice on investor stewardship. The acquisition seems a natural fit with existing offerings, such as Standard & Poor’s RatingsDirect Climate Risk Reports and the Dow Jones Sustainability Index (DJSI).

Alongside Alexander Matturri, CEO of S&P DJI, other prominent figures at S&P DJI include Alka Banerjee, Managing Director, Product Management and David Blitzer, the Chairman of the Index Committee.

The firm – whose flagship Dow Jones Industrial Average (DJIA) celebrated its 120th birthday this year – calculates more than 1m indices and the division had $597m of revenue last year. Taking – and developing – Trucost can only add to that offering.

With reporting by Sophie Robinson-Tillett.