One of the gurus of ESG investing has recently launched a new service for financial advisors (FAs) who want to integrate Environment, Social, and Governance (ESG) factors into their investment process. He has created a site called “Sustainable Investing” and filled it with content about ESG investing. Those who subscribe (there is a three month free trial option) get a quarterly newsletter and access to some otherwise hidden research reports.
The site’s author is Henry Shilling, who until recently led Moody’s sustainability
research efforts. I believe there are several reasons it has been difficult for FAs to bring ESG into their work. (Henry was also one of CSRHub’s beta testers and an early subscriber.) During his time at Moody’s, Mr. Shilling performed several seminal studies that connected ESG factors with corporate long-term financial performance and risk. I recall taking so many notes during one of his talks at an S-Networks “Summer in the City CSR Investing Summit” that the fellow next to me told me to stop. My laptop keyboard clicks were making too much noise and he also wanted to hear Henry speak.
- The available ESG data sets are too expensive for many FAs to afford.
- ESG data sets are complex and hard for advisors to navigate and understand. They focus on detail over substance and have “holes” in their data that make comparisons difficult.
- FA clients have personal biases and views that demand client-specific adjustments. The correct portfolio of one client may not fit the needs of an FA’s other clients.
- Clients have expected (and FAs have promised) that ESG-oriented portfolios will outperform those that do not take corporate social responsibility considerations into account. ESG funds have more or less performed in line with the market—but most of those currently offered have not been around that long. We have not seen yet an ESG fund show consistent multi-year outperformance.
Henry has stated publicly that he believes investors and their advisors who care about ESG issues should seek to earn only market rate returns. I agree with him. He and I both believe that it is possible to construct a market-performing portfolio of investments that reflects a client’s personal values, if one uses a broad enough initial investment universe. Henry’s new site is an attempt to provide practical advice and tools for implementing these ideas.
Bahar Gidwani has built and run large technology-based businesses for many years. Bahar holds a CFA (Chartered Financial Analyst) and was one of the first people to receive the FSA (Fundamentals of Sustainability Accounting) designation from SASB. Bahar worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. He has founded several technology-based companies and is a co-founder of CSRHub, the world’s broadest source of corporate social responsibility information. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. He plays bridge, races sailboats, and is based in New York City.
CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information. It covers over 18,052+ companies from 135 industries in 133 countries. By aggregating and normalizing the information from 556 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers, API partners and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.