Taylor Gray, Ph.D.
The world is a better place when companies are good corporate citizens. I remain focused on developing meaningful and actionable insights from empirical data in pursuit of a better world.
A recent report is making the rounds questioning the actual impact of sustainable funds (as reported in Financial Times, or directly from the study authors). Measuring impacts against the UN Sustainable Development Goals, it appears sustainable funds only perform 2% better than non-sustainable-marketed (or traditional) funds on average. As reported, the conclusion is clear: ESG and sustainable funds are rife with greenwashing.
This is leading to a few common questions in the general form of “If ESG is mostly greenwashing, why should I report / invest / act on such data?” It’s a good question, but it is a bit of a chicken-or-egg situation.
ESG data can be remarkably powerful, but without clear motivation it is nothing more than data.
A better question could be shortened to simply be: Why should I report / invest / act on ESG data? To start, we need to forget about the qualifiers and contextualization and simply explore the motivation for why we are engaging in ESG.
As a business manager, investor, or analyst are you engaging in ESG data because:
- You believe it helps align business strategy with shifting market trends?
- Key stakeholders have requested this data?
- You believe it can assist in managing the risk profile of your investment portfolio?
- You believe it can inform the growth profile of your investment portfolio?
- It can help you maximize your positive impacts in the world?
- It can help you minimize your negative impacts in the world?
- You believe ESG-related regulations are forthcoming and want to get ahead of them?
- It has become a buzzword and you don’t want to miss out on any marketing opportunities?
There is no objectively correct answer. ESG is a universe of information to help guide decisions and lead to outcomes. The appropriateness of these decisions and outcomes depends on the motivation and anticipation you, as the protagonist, have in making them.
So, why do you engage in ESG? What decisions do you make? What outcomes do you hope to bring about?
It's All About Perspective
The report currently being cited as evidence of greenwashing in ESG and sustainable funds is very well done. But before you jettison your ESG efforts, note that the study is framed in the motivation that ESG and sustainable funds should maximize the positive impacts of companies on people and the planet.
If instead you thought the role of sustainable funds was to minimize the relative impact of companies, or to manage long-term financial or regulatory risk, to satisfy stakeholder requests, or to profit of market trends then the results of this study would be interpreted quite differently.
We can’t actually draw meaningful conclusions from ESG research unless we first determine for ourselves why we engage with ESG...and your ‘why’ may be different from my ‘why’.
I quite enjoyed reading this study and I support the findings...but that is because I also share a motivation in engaging with ESG similar, it seems, to that of these study authors. ESG data can be remarkably powerful, but without clear motivation it is nothing more than data.
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