Shifts & Narratives #12 - ESG is not a given, the battle for data has just begun

Wednesday 24 November 2021

Research / Market

ESG (environmental, social, and governance) investing has been making news headlines recently. With the rising adoption of ESG worldwide, regulatory scrutiny has started to intensify. The focus of this attention has been the assessment of what is effectively the integration of ESG principles into the traditional investment process versus what can sometimes appear to be the mere labelling of investment products as ESG with minimal effort to incorporate ESG aspects – a marketing push put in place to address fast growing investor demand.

The matter is not an easy one, as ESG is continuously evolving. In fact, as the process of ESG integration progresses throughout the entire investment value chain, the so-called traditional and ESG worlds and organisations are converging. What was once the remit of ESG analysts separated from that of the fundamental ones, now is not. With the convergence of these two worlds, various set ups are emerging and walls of the past are continuing to fall as ESG and fundamental valuation models and terms are becoming unified.

Among the key reasons why this convergence is taking place, is the fact that the previously perceived trade-off between ESG and performance is outdated. ESG is no longer seen as detrimental, but at the very least neutral or even complementary to the classical portfolio metrics of risk and return, therefore driving the case for the inclusion of ESG into fundamental assessments.