At a recent conference we discussed ESG reporting with a number of financial advisors. One, who identified himself as fiscally conservative, appeared to take great pleasure in describing us as bleeding-heart liberals who were trying to complicate investment decisions with an arbitrary do-gooder philosophy.
To which we reply: Balderdash.
OWL ESG is proud to promote ESG as a market-driven solution to age-old gaps between a company’s standard reporting and its real-world impact. How do companies track the hidden costs they represent to others? Long-term sustainable practices? Non-bottom-line issues that have demonstrated a correlation to better performance?
In the past the answer, fairly universally, was simply “they don’t.”
Perhaps in the past it seemed like hidden costs were not costs at all. But anyone serious about the mandate of personal responsibility — long held sacred by conservative thinkers — should feel proud to account for all measurable effects of their business operations.
With the shrinking of open space and decline of shared resources, externalities are becoming more substantial; with the advance of technology and crowd reporting, they’re more visible. Add in just the right amount of public outrage and you’ve got a scandal; add in political responses and you’ve got fines and new regulations, which by their nature are likely more burdensome than it would have been to avoid the issue in the first place.
ESG reporting evolved to help investors and other stakeholders make sense of these issues. ESG issues track measurable factors representing material risks and opportunities. They are not currently mandated by the SEC and at this stage of ESG data evolution it seems more helpful to let the market continue to evolve these standards. The resulting data sets will serve the market, and will not be subject to changes due to political cycles. Nonetheless, disclosure mandates may be coming in the future.
ESG is an apolitical tool that is helpful to investors, to the companies who report their metrics, and to the general public. If you still think it’s just soft, feel-good data, contact us for studies on how ESG integration can affect index performance, and see how you can feel good about that, too.