ESG movement’s largest achievement? Driving ESG corporate disclosure

Here’s a note from Nawar Alsaadi:

Someone asked me what sustainable investing (ESG) has accomplished over the last 20 years? My first instinct was to assess how much money went into ESG funds, and document what impacts these funds have generated, if any. Consequently, I quickly assembled a collection of papers focusing on ESG engagement outcomes, institutional investors sustainability impacts, and the growth in funding for clean energy. But soon after, I realized that this collection of empirical, yet anecdotal evidence, was not the ESG industry biggest achievement.

The ESG movement major achievement in my opinion is driving ESG corporate disclosure, and normalizing the integration of sustainability data in investment analysis. ESG disclosure surveys routinely reveals that investors are key instigators of corporate ESG disclosure. Furthermore, investors desire for consistent, comparable, corporate sustainability data is one of the major drivers, if not the biggest driver, for the development of corporate disclosure regulation globally (89% of investors agree that ESG reporting regulations will help them do their job more effectively).

The reality is without the ESG movement, with its many participants, frameworks, standards, acronyms, coalitions, principals, associations, research papers, whitepapers, conferences, statistics, measurements, and many wins and failures, sustainability would not have been part of the business conversation, and investors would have never been exposed to the environmental, social, and governance risks lurking within their portfolios.

In the attached screenshot of Apple’s stock on Yahoo Finance, you see the word “sustainability” as one of the key navigation categories for investors looking at the stock, this is where you get to examine Apple’s ESG controversy ratings. This seemingly uneventful sustainability category would not have been here without the enduring efforts of the ESG community.

So What?

The above is the logical question that ensues, so what if such data is available? the answer to this question brings us to the ESG movement biggest failure, namely, investors’ failure to fully and systemically capitalize on the availability of sustainability data to drive better financial and non-financial performance.

For the most part, investors have confined the use of ESG data to simplistic classifications and categorizations instead of developing impactful, alpha, generating, investment strategies. During my presentation at the IFRS Sustainability Symposium in NYC earlier this year, I showcased several examples of how fundamental and quant investors can leverage sustainability data to generate better returns, and in the process make the world a better place. Alas, only a handful of investors have gone this far. Nonetheless, if my Apollo post from yesterday is any indication, there is hope yet.