With the recent wave of consolidation in the ESG research sector, news that MSCI will cut as many as 80 jobs as the index company combines its operations with research house RiskMetrics, doesn’t come as a big surprise. However, could this be the beginning of a troubling trend for social investors?
The consolidation merry-go-round started in 2009, when RiskMetrics acquired both Innovest and KLD Research & Analytics before RiskMetrics itself was scooped by MSCI earlier this year.
Closer to home, Toronto’s Jantzi Research teamed up with European research firm Sustainalytics in September 2009.
Earlier this month, The Corporate Library and GovernanceMetrics International (GMI) announced a merger. Analysts note that the two were perhaps the last, relatively large independent companies in the ESG research field.
Consolidation is a fact of life in the broader financial services industry, and it almost always comes with job cuts. Should we expect ESG research firms to act differently simply because they analyze companies based, at least partially, on the way they treat their employees? Probably not. It’s important to remember that ESG research is a business, like any other, and needs to be profitable to survive.
But there is a risk that this could become the old “Do as I say, not as I do” conundrum if ESG researchers violate their own policies for other companies in areas such as job security and employee rights. In a world where transparency and open dialogue are paramount, you not only have to do the right thing, but have to be seen as doing the right thing.
So, how many jobs cuts are acceptable in this new world of consolidation? And will it affect the quality of the research itself? Many SRI mutual fund companies rely on this kind of research, and they will soon have fewer choices. That doesn’t necessarily mean the quality of the product will suffer, but we’ve certainly seen examples in other industries where the big players feel free to bully their customers, simply because they know they can.
And then there’s the next generation of ESG and SRI financial analysts. Will they now be thinking twice about joining an industry dominated by a handful of large companies where job opportunities are limited?
Food for thought in the lazy days of summer. Comments are welcome.
A few years ago, I joined CoreRatings, a London-based provider of C(S)R research and engagement services, as its Head of CSR Research. At the time, there were well over 60 professionally organized research providers competing in a shrinking market (as clients were merging and consolidating). My guess was that many of these research providers were barely keeping afloat and/or were being subsidized in one shape or another. In my case, FitchRatings eventually disposed of CoreRatings, with DNV and, later on, Innovest gobbling up the pieces (and most of the talented staff) most suited to their positioning and client base. -- In terms of a maturing sector, the consolidation (and globalization) process makes sense. And I think there will always be room for some niche players who can create value with superior data collection and analysis, or by looking not only next to the street lantern in the hope to find their lost keys. Long-term job security is perhaps as illusive of a concept in the SRI/CSR sector as it is increasingly in most other sectors.
ReplyDeleteIt is perhaps worth pointing out that these lay-offs are in the risk business of MSCI, not in the ESG research unit.
ReplyDeleteAnd I don't believe the ESG community perspective is (or should be) that lay-offs shouldn't happen but that they should happen in a fair way -- enabling employees to try to find other positions in which to be useful, giving ample notice, and providing a severance. No?
Great comments, thanks.
ReplyDeleteHere's another perspective on the same topic, posted on the CSR wire:
http://csrwiretalkback.tumblr.com/post/889599544/unbelievable-hypocrisy-highlights-costs-savings
Doug