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Why ESG metrics and measurement matter to your investments

Published: 06 Dec 2021

Relying on ratings requires subordinating your views

According to a recent survey by Backstop solutions, 72% of asset allocators do not currently collect on Environmental, Social and Governance (ESG metrics), because of a lack of standards around the issues, irregular investment manager data submissions and difficulty storing information. 

In prior blogs, we argued that standard, required, comparable and verifiable ESG or sustainability disclosures provide a necessary basis from which investors can extrapolate information and make investment decisions.  We also previously noted, that most advisors and their clients are primarily focused on achieving financial planning and long-term savings goals and their fundamental beliefs and ethics that may diverge from the broad, standard ESG metric assumptions or approaches.  Relying on “scores” or third-party ratings inherently requires accepting someone else’s opinion about what is important.

The future is bright, but investors can get “good enough” ESG metrics today

ESG metrics
Are we measuring the right things?

With greater disclosure standardization and clearer materiality assessment guidelines, advisors and other asset allocators will have the opportunity to customize and frame their investment selection and monitoring in accordance with their values.  

The emerging global consensus is that data and disclosures must be measurable, comparable and verifiable. 

This requirement enables advisors and investors to pull information from data providers and put their values-based weights on what is important and how important the factors are. 

Essentially, the advisor / investor creates a custom values-based ESG metrics on which to build a portfolio or fund-level profile against which they can judge whether an investment is more or less aligned with their objectives – financial and non-financial.  

While standardization makes this analytical approach more easily executed and reliable across companies and time, data providers have surfaced sufficient information and transparency for advisors/investors to establish a custom values-based baseline analysis across portfolios and funds today.