Investors should boycott non-ESG sell-side firms says UBS broker head

ESG integration needs commission signal or greater corporate access.

A senior broker has challenged institutional investors, especially United Nations Principles for Responsible Investment signatories, to boycott sell-side research firms that don’t have specific environmental, social and governance (ESG) research capabilities. In a response from the floor to a panel discussion at a Financial Times conference in New York yesterday (March 24), Erika Karp, managing director and head of global sector research at UBS, said: “I challenge institutional investors and corporate leaders to consider helping the sell-side to encourage truly integrated ESG investment research by allocating commissions or granting greater corporate access when investment banks deliver differentiated SRI Research.” Karp is chair of UBS’ Global Investment Review Committee and a member of the board of UBS investment bank. The calls come amid concerns from brokers that there are few clear incentives from investors for them to produce sustainability research, notably in the social and governance areas.At the height of the credit crisis in early 2009, some ESG sell-side teams were badly hit by redundancies and the closure of services. Speaking on the panel, Brian Rice, investment officer, corporate governance, at CalSTRS, the US pension fund giant, asked what had happened to the
Enhanced Analytics Initiative (EAI), suggesting that the EAI has suffered badly in profile since it was merged with the UNPRI in December, 2008. Under the EAI, investors promised a 5% cut of commissions to recommended ESG brokers. At the time of the EAI fold-in, the PRI dropped the 5% commission commitment and said it was adopting the EAI as its platform for promoting the first of its six principles: to incorporate ESG issues into investment analysis and decisions. However, the initiative has since been given little promotion. Privately, some brokers say they have given up on the EAI, although many say they have uploaded research to the database created by the PRI.