27-10-2022 · 可持續投資難題

SI Dilemma: Do we need perfect ESG data?

The most persistent topic of discussion in sustainable investing is ‘when will the data be good enough?’. That can mean sourcing data that is more comprehensive, reliable, consistently measured, clearly defined, comparable, audited, regulated, financially material or impact relevant. The wish list is long, and it depends on who you ask, and what they want to do with the data.


  • Rachel Whittaker, CFA - Head of SI Research

    Rachel Whittaker, CFA

    Head of SI Research

The challenge that sustainable investors have is that we want to be sure that we invest in sustainable companies – as well as get financial returns – while also being able to measure the impact (positive or negative) that these companies have on the world. A tall order.

In this discussion, we often fail to acknowledge that the origins of sustainable investing long predate the easy availability of ESG data. The first ‘ethical’ mutual funds are believed to have emerged in 1971 in the US and in 1984 in the UK. ESG indices started taking off in the 1990s (MSCI, Sustainalytics, and then DJSI in 1999), while the Global Reporting Initiative encouraging companies to report publicly on non-financial issues was founded in 1997.

ESG data has made huge strides

Accessible ESG data came even later – MSCI ESG Ratings launched in 1999, Trucost Carbon Intelligence in 2000, and Bloomberg ESG Solutions in 2006. Even the term ‘ESG integration’ is believed to have been coined only in 2005, a year before the UN Principles for Responsible Investment launched. So, investors have been investing according to their non-financial goals for a long time, doing their own research and making decisions based on the knowledge available to them.

Today, most companies publish a sustainability report, investors have a wealth of ESG information at their fingertips, and the alternative data market is exploding, particularly in the area of natural language processing and geospatial data. In comparison with the turn of the century, we are overwhelmed with data, and regulation will likely drive an avalanche of additional company reporting in the next few years.

We are therefore undoubtedly able to make better-informed decisions today than we have been able to at any time in the past. But too much data could even create new challenges, making it more difficult for investors to identify the most important indicators amid all the noise.

Standardized data is far from a magic bullet

Environmental and social data is often compared unfavorably to financial data. Critics point to global accounting standards, stock exchange listing rules, regulatory requirements for financial statements to be audited, and severe penalties for accounting fraud as reasons why financial data is superior to non-financial E and S data.

However, financial data is not perfect either. There are enough examples of accounting fraud to know that if companies want to hide information, they will, and many get away with it. We only hear about the cases that are discovered.

It is certainly true that the environmental and social metrics are harder to measure than cash flows. Differences in measurement definitions and the intangible nature of many environmental metrics mean mistakes and inconsistencies are likely, and comparability between measurements from different companies is hard.

Financial data still has problems

However, even financial information has issues. Investment analysts always need to adjust their valuation models to reflect different business decisions around, for example, capital structure and acquisitions, to fully understand how one company is performing versus another. Standardized accounts do not present the whole picture.

Additionally, fundamental investors do not make decisions based solely on financial statements anyway. The financial numbers only tell us what happened in the past. More interesting is the company’s strategic outlook – what are their plans for next year; what do they see happening in their company and industry?

Investors also want to know how the industry is likely to evolve and how peers are behaving. They want insights into what employees and customers think of the company in order to assess how likely it is that the management will execute their strategy and achieve their goals to create future value.

The same is true for ESG data. Backward-looking metrics only give us a starting point, and more research is needed to predict the future. This is the job of investment analysts, and it is an art, not a science.


Data and ratings are not the same thing

Another criticism of ESG data is that ESG ratings are not in agreement. However, this is based on a misunderstanding of what ratings are, and how they should be used. A rating is a subjective opinion, not an objective datapoint. The opinion might be based on different underlying beliefs of the most important ESG issues, or whether financial materiality or sustainability impact is more important.

Again, we can compare ESG ratings to traditional investment recommendations to see the same dynamic at play. Investment analysts looking at a company all have the same financial information to start from, but they do not all arrive at the same investment recommendation.

Asset management (buy-side research) analysts know this, and do not take broker recommendations (sell-side research) at face value. They use the different insights to enhance their own research and arrive at better-informed decisions. Users of ESG ratings need to ensure they understand the rating methodology to ensure they are using the information in an appropriate way.

How do investors deal with imperfect data?

Sustainable investors have been dealing with imperfect data for years. Investors who can work with the messiness of environmental and social data have an advantage over those who sit and wait for the data to become perfect. How much data is ‘enough’ depends on the extent to which any investment strategy commits to incorporate and report on sustainable and impact considerations.

Minority investors always face the challenge of never knowing everything about an investment, so they have to estimate and make assumptions in order to predict the future performance of an investee company. This applies to both traditional and sustainable investing.

However, expectations of ESG data and strategies seem unrealistic sometimes – why are portfolio managers of sustainable funds who experience a ‘controversy’ in their portfolio criticized more than portfolio managers who experience a profit warning from one of their holdings? Given the general belief that financial data is superior to ESG data, the opposite should be true!

It’s only a tool

Ultimately, all data is only a tool for investment decisions, whether financial or non-financial, and interpretation of the data is much more important. Trying to forecast the future is, by definition, going to mean that some will get it wrong.

We must not lose sight of the aim of sustainable investing – to channel capital into sustainable economic activities, by investing in sustainable companies that will deliver financial returns and have a positive impact on the world. The collection of data in itself is not the end goal, and the pursuit of perfect data must not be an excuse for inaction.


本文由荷宝海外投资基金管理(上海)有限公司(“荷宝上海”)编制, 本文内容仅供参考, 并不构成荷宝上海对任何人的购买或出售任何产品的建议、专业意见、要约、招揽或邀请。本文不应被视为对购买或出售任何投资产品的推荐或采用任何投资策略的建议。本文中的任何内容不得被视为有关法律、税务或投资方面的咨询, 也不表示任何投资或策略适合您的个人情况, 或以其他方式构成对您个人的推荐。 本文中所包含的信息和/或分析系根据荷宝上海所认为的可信渠道而获得的信息准备而成。荷宝上海不就其准确性、正确性、实用性或完整性作出任何陈述, 也不对因使用本文中的信息和/或分析而造成的损失承担任何责任。荷宝上海或其他任何关联机构及其董事、高级管理人员、员工均不对任何人因其依据本文所含信息而造成的任何直接或间接的损失或损害或任何其他后果承担责任或义务。 本文包含一些有关于未来业务、目标、管理纪律或其他方面的前瞻性陈述与预测, 这些陈述含有假设、风险和不确定性, 且是建立在截止到本文编写之日已有的信息之上。基于此, 我们不能保证这些前瞻性情况都会发生, 实际情况可能会与本文中的陈述具有一定的差别。我们不能保证本文中的统计信息在任何特定条件下都是准确、适当和完整的, 亦不能保证这些统计信息以及据以得出这些信息的假设能够反映荷宝上海可能遇到的市场条件或未来表现。本文中的信息是基于当前的市场情况, 这很有可能因随后的市场事件或其他原因而发生变化, 本文内容可能因此未反映最新情况,荷宝上海不负责更新本文, 或对本文中不准确或遗漏之信息进行纠正。