Integrating Sustainability in Investment Analysis

Many investors and companies agree that sustainability can directly influence the evaluation of companies’ financial health as well as the forecasting of future earnings. For this reason, it has become central to understand how ESG issues can be integrated into financial analysis. This is, however, not just a task for financial analysts, but also for portfolio managers who buy such analysis from sell-side researchers and for investor relations officers at listed companies.

In the report, Integrating Sustainability in Investment Analysis, Sweden’s Sustainable Investment Forum (Swesif) in collaboration with Misum researchers Emma Sjöström and Rachelle Belinga have set out to explore the interaction between these three actor-groups, in order to better understand the drivers and challenges for integrating ESG in financial analysis. The study is based on interviews with sell-side analysts, portfolio managers and investor relations officers in the Swedish market. It is a follow-up to a previous study by Swesif, SSE, and Stockholm Environment Institute (SEI) in 2019 on the theme of integrating long-term perspectives in financial analysis.

“Financial analysts approach ESG with different levels of sophistication: For some, the financial connection with ESG is clear and it is fairly straightforward to integrate it into the valuation models. Others see ESG issues as something separate, perhaps even reduced to a reputational concern. I believe that there will be a rapid development here in the next few years: I would expect to see more refined methods for understanding how sustainability issues connect to the financial perspectives in both the short and long term, but also how sustainability issues connect to each other and what these interconnections mean for businesses. So there is a lot of important research for us to do in this context.” Emma Sjöström, Misum Sustainable Finance Initiative Co-director and report author