What would it take for ESG investing to actually deliver results?
Terrence Keeley stresses in his article ESG Does Neither Much Good nor Very Well that the benefits of sustainable funds are still questionable, be they financial or not.
He identifies several shortcomings in the current way these funds are managed and marketed:
- Divestiture is an ineffective tool, as it drives responsible asset managers away from the firms that need reforms and raises returns for other investors.
- Transparency is still lacking, as most ESG funds should still do not provide proper impact reports with their financial returns.
- The tools available on the market are not up to the task : aggregated ESG scores in particular do not convey actionable levers for investors to improve the extra-financial performance of issuers.
- No ESG score or strategy can be better than the data it is based on. Raw extra-financial metrics at issuer-level still lack standardisation and reliability.
- Sustainable funds should be held accountable for the claims they make rather than getting away with disclaimers after their advertisements.
As long as the positive impact and outperformance of ESG funds are not broadly accepted within the investment industry, Mr. Keeley advises sustainable investors to either work on those or lower their claims.