Mike Tyrrell, Citi Investment Research
For research into sustainability and socially responsible investment, Citi Investment Research consistently comes out on top.
Mike Tyrrell, who leads the research team, has been involved in SRI for ten years, formerly on the buyside; now on the sellside.
He works with one other analyst, Meg Brown, and one specialist salesperson, Sandra Carlyle.
The product of a sell-side SRI team – written research, corporate access, stock ideas for the sales team and bespoke work for investment clients – has remained pretty constant, he says.
But the levels of interest and understanding of the issues by investors and companies has been encouraging.
Tyrrell admits that you wouldn’t see a strong social and environmental interest coming through in 80 per cent of meetings as a company.
“What companies don’t see,” he says, “is the conversation by the coffee machine before or after the meeting. That is where themes identified by the SRI analyst are being picked up by the financial analyst.”
On some issues, such as climate change, sustainability analysts are becoming well considered voices in the investment debate within buy-side institutions, he says.
In parallel, corporate responsibility teams within companies are building relationships with heads of business development, strategic planning, finance and investment vetting committees.
“The two trends are fairly well mirrored,” says Tyrrell. “I suspect that any company that says they don’t see the mainstream financial analysts being very interested in social and environmental issues is probably not linked up itself.”
One mistake that companies make when they talk about social and environmental issues, says Tyrrell, is that they focus only on the downsides.
Instead, companies and investors should be focusing more on the opportunities to be captured, not just the risks to be managed.
“Environmental and social challenges aren’t systemically different from market share or cost reduction challenges,” he says.
“Any company that is up-to-speed will be able to deal with issues and even make profit out of them.”
For the auto sector, there is a pressing need for better disclosure and transparency in relation to the carbon efficiency of cars, which could become a very investable issue this year due to pending EU regulation.
If passed, this might cause a significant competitive differential in the sector.
For mining firms, the two issues that really have potential to add and destroy value throughout the sector are climate change and water.
“There is already good broad environmental and social reporting in the sector but it needs to move towards a more investable focus on these issues,” says Tyrrell.
Know your audience
If you want the manger of a sustainability fund to buy your shares then there is no substitute for a face-to-face meeting.
“From the tenor of their questions and the feedback they give you afterwards you can learn a lot about how the market and a particular investor views your company,” says Tyrrell.
He stresses that SRI investors are not pressure groups that want to see the company fail or hit the headlines, nor are they local community groups that are only interested in one-off projects in a given area.
“They have a vested interest in a company managing social and environmental risks and opportunities, and doing well out of them,” says Tyrrell. “They should be treated as investors rather than as pressure groups in suits.”
Bottom-up research
Citi does not recommend that companies rely on CSR questionnaires because they then miss out on the direct feedback and the learning experience.
The SRI team conducts its analysis on a sector-by-sector and often company-by-company basis, rather than taking a cookie-cutter approach.
“I wouldn’t deploy any technique across all companies and sectors. I don’t regard any of them as being sufficiently robust to apply across the board,” says Tyrrell.
“We think you have to take a defined set of social and environmental information and a defined company in a specific market and work from the bottom up, developing techniques as we go along.”
