GLOBAL – Sourcing reliable and uniform data on environmental, social and governance (ESG) matters is a "struggle", according to a study by French socially responsible investment (SRI) centre Novethic.
The study, 'Choosing indicators to measure the ESG performance of investments', found that asset owners and managers with SRI policies were gradually disclosing more information about their practices and results to help them assess the value added by incorporating ESG criteria.
However, respondents said they found it hard to explain the results of an investment process by relying on ESG ratings that differed from company to company.
Novethic said there were two reasons why institutional clients were beginning to express the need for straightforward ESG indicators.
Firstly, when delegating investments differing managers, they wanted to be able to follow and compare portfolios using the same indicators.
The research further said the indicators should enable financial institutions to validate their SRI approach internally with their board of directors or senior management, as well as to their beneficiaries and, more broadly, their stakeholders.
However, it proved hard to provide simple indicators when ESG ratings incorporated hundreds of criteria – the most frequent of which were greenhouse gas volumes and job creation for environmental and social criteria, respectively.
Indicators for good corporate governance were fewer and more varied, dealing with the number of women on a board, director independence and issues of executive pay.
Novethic noted that in creating comparative measures, the industry faced the same problems in sourcing reliable and uniform data.
It believed that obtaining robust ESG data and achieving a methodological consensus about how funds' ESG performance indicators should be constructed were vital requirements for confirming the legitimacy of responsible investment approaches and assessing the benefits of SRI analysis.
Such indicators could become effective tools for assessing the value-added generated by ESG, it added.