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How to Create a Proprietary ESG Investment Process
When creating an ESG methodology you first need to ask yourself: What your organization is trying to achieve – what are your objectives, and what is the strategy for meeting them? Are you about impact investing or is it more of a screening mechanism? Are you using external or internal inputs – in other words, ratings that you ingest and use for scoring, or are you coming up with your own formulation?
The article features a nice framework to understand how you are doing:
Institutional Investor.
ESG BS Detector: iShares Low Carbon ETF
Around the world, investment firms, corporations and governments are scrambling to respond to calls for increased climate action and societal justice with pledges to measure everything against an environmental, social and governance (ESG) yardstick. But in the ESG stampede, insiders warn that too many stocks are getting tossed into green funds without enough oversight. At the heart of the problem is the lack of agreed-upon standards for qualifying for, say, an “ESG-aligned” investment fund. Though that’s starting to change. In March, the U.S. Securities and Exchange Commission announced a new Climate and ESG Task Force in its enforcement division, tasked with “proactively identifying ESG-related misconduct.”
Corporate Knights.
US Companies Boost Sustainability Scores
Investors are demanding more information from companies on everything from carbon emissions to boardroom diversity amid a growing belief that companies which perform well on ESG issues will have a stronger performance financially over time. To help rank companies' efforts, a number of data providers, including Refinitiv, assess corporate disclosures and other data sources. Investors can use them as a starting point for their own analysis before deciding whether to invest. Latest rankings from Refinitiv based on company annual reports for 2020, shows the average ESG score of 137 U.S. companies, with a market cap of at least $5 billion, is 44.2, compared with 42.8 in 2019.
Reuters.
ESG for start-ups: What responsible investment means for tech innovation
The pandemic has increased the urgency of ESG investment: 55% of investors said the crisis had made ESG factors more important to their investment decisions. This urgency is felt by start-up founders too. In a survey of founders by US accelerator 500 Startups, 90% said they believe ESG practices have become more important since Covid-19. “It is unquestionably way more of a topic than it was even a year ago,” says Edward Lascelles, partner at UK firm AlbionVC. Why? Because start-ups have a social and environmental impact like any other business. The 500 Startups survey identified a zero-tolerance policy on gender and racial discrimination, privacy protections, and carbon emissions reductions targets as relevant ESG measures for start-ups.
Tech Monitor.
BlackRock's former head of sustainable investing says ESG and sustainability are distractions
Environmental social and governance criteria, a.k.a. ESG, "creates a giant societal placebo where we think that we’re making progress even though we’re not.” Tariq Fancy argues that systematic government oversight is the only way to scalable climate solutions.
“Fancy: While leading the charge to incorporate environmental, social and governance considerations into all of our $8.7 trillion of investment activities at BlackRock, I started realizing that there’s not a lot of value at all in this data. It didn’t — and it does not — work in most [investment] strategies, since many are short-term and don’t care about long-term issues, and also because, frankly, acting irresponsibly is often profitable. I realized this data was not at all useful to invest in, or at least not nearly as much as [Fink] was implying. It was mainly marketing.
Worse, I also started to realize that all the stuff on "stakeholder" capitalism was hollow marketing — it seemed almost intended to dupe the public into believing that we don’t need the overdue government regulation that we need immediately to address the climate crisis.”
Green Biz.
Reconciling corporate profitability pressure and ESG risks
Historically, the focus on shareholder return has been the primary objective of company directors. However, the emergence of environmental, social and corporate governance (ESG) risks is forcing directors to give equal consideration to the impact a corporation has on society and the environment.
Failing to seriously consider ESG issues can cause significant damage to businesses since:
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Shareholder activism related to ESG issues is on the rise.
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The impact of ESG is increasingly driving investor decision-making.
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New avenues for litigation risks are opening up.
Lockton.
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