Brattleboro, VT — [Editor's note: This article is reprinted with permission from SocialFunds.com.]
The rapidly changing landscape of environmental, social, and governance (ESG) research providers received another major update this week as RiskMetrics Group announced the acquisition of KLD Research & Analytics. The acquisition, which has been widely anticipated for a month, follows RiskMetrics' purchase of Innovest Strategic Value Advisors, like KLD a provider of ESG research, in February.
Traditionally a provider of risk management and corporate governance services to the global financial community, RiskMetrics has, through its purchase of KLD, gained access to one of the most prominent names in the ESG research arena. Founded in 1988, KLD published the first research designed to evaluate the risks and opportunities associated with corporate social and environmental performance, according to the press release announcing the acquisition.
Currently, more than 400 clients, including 31 of the 50 largest institutional investment managers globally, use KLD's research to inform their investment decisions based on ESG considerations. In addition to helping facilitate the incorporation of ESG factors into the investment process, KLD's mission has been to provide services to investors seeking to influence corporate accountability.
The merger of the two companies will be closely watched by the socially responsible investment (SRI) community, for which KLD has long been viewed as a prominent standard bearer for ESG investment research.
The field has been undergoing consolidation at a rapid pace. In addition to the acquisitions by RiskMetrics this year, the merger in August of Jantzi Research and Sustainalytics was also a significant example of the consolidation.
In 2007, RiskMetrics acquired Institutional Shareholder Services (ISS), a proxy advisory firm that was founded in 1985. Prior to being acquired by RiskMetrics, ISS purchased the Investor Responsibility Research Center (IRRC), like KLD a provider of ESG research and analysis.
When RiskMetrics acquired Innovest in February, Innovest had a team of 50 researchers, which has since been pared down by RiskMetrics to a fraction of that amount. In October, Matthew Kiernan, the founder of Innovest and co-head of the Sustainability Solutions Group at RiskMetrics since the merger, left the combined company.
Ran Fuchs, the head of the sustainability business at RiskMetrics, told SocialFunds.com at the time of the Jantzi—Sustainalytics merger, "It's very difficult for the small companies to grow organically. As much as they want to, small companies cannot provide breadth of coverage, because of scalability and maximum use of technology."
While it is not at all uncommon for consolidations to include the workforce reductions experienced in the aftermath of the purchase of Innovest by RiskMetrics, the SRI community will be looking for assurance that the consolidation of KLD into the Riskmetrics fold furthers KLD's mission of providing investors with tools to influence corporate accountability.
In addition to risk management and corporate governance services, RiskMetrics provides proxy advisory services to institutional investors.
Image CC licensed by Flickr user L'Enfant Terrible.