Does ESG Integration Have E and S Consequences?

Is ESG integration a tool to better control companies?

Based on a series of interviews of 26 interviews of portfolio managers and sustainability experts from a large European bank, Matthew Archer argues ESG integration mostly helps asset managers strengthen their control on the companies they are invested in.

In his "Governing through ESG and the green spirit of asset manager capitalism" paper, he shows how it seemingly objectifies and depoliticises the influence of investors on the governance of issuers:

• Asset managers buy and build ESG indicators to support their pre-defined views in a way that does not seem subjective for invested companies.
• Portfolio managers use this data and ratings to support their narrative and transform political decisions into evidence-based and data-driven ones.
• They are mostly interested in ESG integration to the extent it helps them push policies that will ultimately enhance the market values of invested companies, not taking into account whether it has environmental or social benefits.
• ESG data alone never seems to influence investment decisions, and their extra-financial consequences are rarely mentioned in the investment process.

This report shows ESG integration does not do much to address environmental and social challenges, but rather fosters the same outcomes asset managers were already chasing.

It may even reinforce the status quo by preventing more radical and effective initiatives from investors, who hide behind ESG scores and indicators to tick the box of social responsibility.