Recommendations to the Investment Industry

Can ESG integration be impactful?

Considering the efforts and money put into ESG integration by the finance industry, this question is critical to assess whether we are on the right track to actually build a better world.

A recent paper from the Center for Sustainable Finance and Private Wealth concluded the answer is « a little bit » if 4 nearly impossible conditions are met.

Harald Walkate reacts in the Stanford Social Innovation Review to explain why we should not focus too much on ESG integration and provides guidelines for investors to make better use of their time and resources:

• Revisit the PRI principles: redraft new principles as long as the ones in force are not driving the industry closer to the PRI's initial objectives.
• Revisit ESG and responsible investment policies and beliefs: focus on other tools than ESG integration that have a proven track record of delivering impact.
• Re-educate your ESG teams: redirect your efforts towards activities that can have a positive impact such as active ownership and investing in anything that contributes to the SDGs but isn't receiving funding today.
• Work with governments: support the development of effective policies to address societal issues, and invest with them.
• Revisit your range of ESG funds : make sure those associated with « impact » or « SDGs » are not limited to ESG integration, or you will end up being challenged on those.

Of course, investors would need to work with governments and regulators to set up a proper investing environment and really make ESG integration impactful at scale. The author advises they do not rely too heavily on ESG integration to do so and rather focus on using tried-and-tested tools and revisiting sustainable finance regulations to lift some of the reporting burden.