It's easy to wax nostalgic about your past, but if you're BP these days, you're probably sentimental about the salad days of March 2010. At the beginning of the year, BP was still in its last gasp as a "green" oil company, one that vowed to go "beyond petroleum." Because it was one of the biggest players in alternative energy, and had a good record on climate change and corporate governance, it had continued to grace several SRI portfolios. Certain funds at Trillium Asset Management, Pax World, MMA Praxis and Legg Mason still held it at the beginning of April. So did the Nasdaq OMX CRD Global Sustainability 50 Index and the Dow Jones Sustainability Indexes.

Yet BP had already started to show warning signs. At the end of 2009, the company had logged more than 700 OSHA safety complaints for its refinery in Texas City, Texas, which exploded in 2005, killing 15 workers and injuring 170 others. Pax World brought the company under review for these and for violations in Ohio and says it was already in the process of dumping BP early this year. Trillium also looked askance.

But these firms didn't drop BP until its Deepwater Horizon rig exploded in the Gulf of Mexico in April, killing 11 workers and, according to government estimates, spilling 13 times more oil than the Exxon-Valdez-some 4.1 million barrels. Many firms wanted to keep some sort of oil exposure, and there weren't a lot of replacements, even though the safety record was making companies wary.

"I would have loved to be able to say we got out in January," says Trillium CEO and senior portfolio manager Matthew Patsky. "But we didn't, and we were out sort of after the pile on of issues and overwhelming evidence of there being troubles."

The Deepwater Horizon disaster has thrown a spotlight on environmental, social and governance data. The safety issues in BP's closet had been enough to give investors fair warning about possible problems (even if not everybody acted on it). And though the numbers can't predict disaster, they can show investors both the risks-and opportunities-of investing green.

Investors' increasing consciousness of the environmentally sensitive business has them scrambling for more robust environmental data, and information providers are rushing to the space. Bloomberg added ESG data to its terminals in November of last year. Also in November, Thomson Reuters bought Zug, Switzerland-based Asset 4, a provider of pollution, water use and corporate governance data for some 3,000 companies. In March of this year, MSCI announced its acquisition of RiskMetrics for $1.55 billion (the latter had announced its purchase of ESG data company KLD in November).

"It's absolutely true that ESG data is becoming more important for fundamental analysis," says Henrik Steffensen, the vice president of marketing and business development services for Asset 4 in Switzerland. "This is also a growth area that Thomson Reuters sees for the company."
As part of its effort to push transparency, Bloomberg's terminals now allow stock analysts to look at a host of extensive environmental data and ratios. Alongside a company's EBITDA and P/E ratios, Bloomberg can also calculate greenhouse gas emission intensity as a ratio of sales. Or carbon dioxide equivalent intensity as a function of EBITDA. Or water usage per employee.

"On Bloomberg you can look at the data and some of the ratios we put together and compare that to standard financial analysis, which looks at price earnings and price to book or any other familiar financial ratio that's quantitative," says Emil Efthimides, the manager of the Environmental Social and Governance Data Project at Bloomberg. "You can commingle any of our ESG with traditional financial data. No extra charge for users."

Bloomberg uses 114 different data points and 62 different ratios on 4,082 companies (as of mid-August). Right now, says Efthimides, Bloomberg's environmental data users come overwhelmingly from those in the SRI space, who represent only 10% of assets under management, he says. But the company believes that the data will build a bridge to non-SRI investors because those companies that practice their business in unsustainable ways ("pushing costs externally," in the parlance of SRI portfolio managers) are going to be run poorly. They will face greater fines. They will face higher costs. They will spend more for electricity. They will undoubtedly have to trade their carbon usage in many countries. They are likely not running their supply chains very well.

In other words, bad environmental management will be bad business management. Just as dividends have become a beacon for some analysts of whether a company can sustain its earnings, SRI analysts can take a measure such as, say, water usage, and call it a harbinger of a company's ability to keep doing business.

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