Does ESG Have an Image Problem?

In a recent article, the editors at Chief Investment Officer demonstrate some of the common misperceptions surrounding the use of environmental, social, and governance (ESG) data when investing, from characterizing it as for tree-huggers to dismissing it as former Editor-in-Chief Kip McDaniel does, saying, “I just don’t believe asset owners can save the world.”

If even investment editors feel this way, then it’s no surprise that ESG still suffers from trouble with public perception. In fact, we often hear similar remarks when we’re talking about ESG with the general public and many advisors — but it’s something we rarely hear from institutional investors. Why? The latter already understand why someone would include ESG considerations in their investment strategies: the data can illustrate a company’s long-term view, identify and avoid risks, and yes, even help select for good corporate citizenship well beyond just environmental impact.

Can ESG data create investments that “feel good?” Yes. But stacks of studies show that ESG has material value, and that companies with high ESG ratings typically perform better than those ranked lower. So harnessing ESG data effectively may even give investors an advantage.

In fact, the article concludes (spoiler alert!), “If you’re serious about managing the long-term risks to your portfolio, ESG issues matter.” Sounds like it’s time for ESG to assert its good image.