Sustainalytics buys Solaron in latest ESG data house acquisition

Deal is part of firm’s increasing focus on emerging markets

Sustainalytics is buying India-based Solaron Sustainability Services, the ESG research company, for an undisclosed amount, as part of plans to ramp up its emerging markets coverage.
Solaron was founded in 2007 by Vipul Arora. It has a core team of 15 staff in India and employs analysts on the ground in the countries it covers. 26 of those – including analysts in India, Brazil, Mexico, Peru – will join Sustainalytics as part of the merger, while others may join in future, RI was told.
Arora will join Sustainalytics in a “very senior role in management”, according to Michael Jantzi, CEO of Sustainalytics, although the actual position has not yet been defined: “We’re still working through those details”, Jantzi said. 
Talking about the Solaron deal, he said: “We want to improve the emerging markets insights that we’re able to provide to our growing client base. ESG in emerging markets has been important historically for our European and North American clients – many of whom say that ESG provides them with more opportunities to generate alpha in emerging markets because the risks aren’t priced in in many of those markets. But interest from within those markets themselves has had a slower growth trajectory. Now, though, it’s becoming an important part of the capital markets story in those countries too – our client base in those markets is clamouring for ESG insights in their own part of the world, and that’s only something that will continue to grow. So we need to continue building our capacity.”
Solaron, which is a member of the PRI’s Sustainable Development Goals Advisory Committee, specialises in doing ‘deep dives’ on corporates and highlighting possible controversies and scandals. Its research often includes interviews with relevant local stakeholders. In 2014, Nordea Asset Management said it had used Solaron’s research to help it outperform its benchmark by 6% on its Emerging Stars Fund.“There’s a lot of smaller firms building credible products in particular markets, but facing challenges in reaching the scale needed to deal with global asset owners and managers who demand information to be delivered in a myriad of ways, and want client service that’s close to them, wherever they are,” said Jantzi. “And that’s not in ESG – it’s everywhere.”
Last week, RI reported that German-based sustainability research firm oekom had been acquired by global advisory firm ISS. ISS has now acquired six smaller companies in the ESG space in recent years, ahead of an IPO. RI reported the same week that UK governance advisory Manifest was potentially in the pipeline to be acquired after it entered administration. Climate specialist Trucost was bought by S&P in 2016, to help it develop products in the ESG space. And last July, Morningstar took a 40% stake in Sustainalytics, in a deal that included its Head of Sustainability, Steven Smit, taking a seat on Sustainalytics’ board.
But Jantzi told RI the consolidation and investment activity that has taken place over the past 24 months is nothing new.
“Look at Sustainalytics: we’re the product of what I would call the first wave of consolidation,” he told RI. Sustainalytics was set up in 2009, as a result of the merger of several smaller ESG houses, followed shortly by a merger with Jantzi Research in Canada. He also pointed to the acquisition in 2009 of Innovest and KLD by RiskMetrics Group, which was in turn bought by MSCI in 2010 for $1.5bn.  
“ESG research, as an industry, has been seeing consolidation in a variety of forms since 2007/2008, and that just reflects the dynamism of the financial services market more generally,” he said.
He added that he expected to see more mergers and acquisitions in the market, and that Sustainalytics would be announcing “some exciting new launches” in 2018.