The state of ESG investing: a portfolio management perspective

Abstract

SG strategies have experienced a massive inflow of capital over the past decade despite investors having little concrete evidence that ESG investing accomplishes its purported goals. It has also happened without investors having the information, tools, and methods needed to evaluate and communicate their specific ESG values, objectives, and preferences. Without evidence of efficacy and clearly articulated investment objectives, it is impossible for investors with ESG intent to know if they are getting what they are paying for, to distinguish between investment managers based on nonfinancial objectives, or to improve the likelihood of achieving positive ESG investing outcomes. This paper highlights key challenges faced by ESG investors and portfolio managers implementing ESG investment mandates. It recommends an issuer reporting framework that supports portfolio reporting and evaluation. It also recommends an ESG product template that focuses non-financial investment objectives, process elements, and measurable outcomes.