The year investors define and discover ESG

(Jan 31): The growing focus among asset owners, governments and regulators on ESG (environmental, social and governance) is amongst the largest factors driving change in the way capital is allocated today. The overwhelming majority of pension funds, sovereign wealth funds and insurers have ESG at the top of their agendas.

However, for something which is fast becoming a fundamental aspect of how and where institutional investors place their money, the data quality surrounding ESG remains surprisingly poor. This problem is sizeable and will not be fixed in the next 12 months — but I believe 2020 will be the year of “ESG definition and discovery”, in which major advances are made.

Specifically, I think we will begin to see more success in defining the alpha-generating capabilities of ESG. Unless ESG impact — both on society and on the risk/return profile of portfolios — can be measured, the shift will remain a movement rather than a revolution. Until ESG can be measured in a consistent and transparent way, investors will struggle to measure the necessary metrics of progress. Improving consistency of measurement will eventually lead to high standards of ESG becoming a matter of existential importance for every company in the world that is seeking capital.

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