ESG ‘Wild West’ Era Coming to an End

Update from Bloomberg…

There’s a veteran of ESG investing who can’t wait for tougher regulations to stamp out the false claims by fund managers in the $35 trillion industry he helped champion. Matt Patsky, who runs Trillium Asset Management, first started hunting for environmental, social and governance investments back in the 1990s, long before most money managers were even thinking about ESG. He now estimates that only a fraction of today’s ESG assets is bona fide sustainable investing.

Efforts by regulators to rein in money managers’ ESG claims are the “best thing to happen to the industry in years,” Patsky, whose Boston-based firm manages $4.8 billion, said in an interview. “It brings scrutiny to an area that’s become the wild west, where fund managers have discretion to slap ESG labels on anything.”

Patsky, who introduced the world’s first green-chip index of socially-responsible companies in 1994, estimates that of the $35 trillion that the Global Sustainable Investment Alliance says is parked in sustainable investments, less than $1 trillion is in “real” ESG. Of that, $500 billion is managed in Europe and as much as $300 billion is in the U.S., he said.

To be a credible socially responsible investor, Patsky says managers need to first be skeptical toward ESG-ratings data, which he claims is riddled with errors. Those issues make passive ESG investing impossible, he added.

His checklist for being a serious ESG investor includes pressuring corporate executives to change their companies’ behaviors, filing shareholder resolutions and voting on those filed by others.

Trillium’s comprehensive, fully integrated investment process incorporates a proprietary ESG rating method as well as a time-tested fundamental approach to identify attractive investment possibilities with competitive risk adjusted returns. They think that a company’s dedication to ESG principles provides a unique competitive advantage and long-term value.

Sustainable Investments

Sustainable investments are a growing trend among investors, but at the same time many view it as a riskier investment strategy. Sustainable investments aim to achieve financial returns while taking environmental and social factors into consideration. The main driving forces behind sustainable investing is an increasing desire for ethical (Corruption Perceptions Index) and environmental considerations in consumers’ spending and also increasing market volatility.

While sustainable investing can play a role in reducing risk, there are associated risks. The fund industry is still relatively new and undefined. Sustainable funds may be less liquid than other funds. Thus, assessing who is running sustainable funds and how they handle ethical concerns among staff members, governance processes for the fund managers’ investment decisions and ensuring that the fund’s portfolio is sufficiently diversified are crucial.

Social Investment Forum defines sustainable investment as “investment made with the intention of positive impact on the environment, society and economy.” Sustainable or responsible investing (SRI) is an investment strategy that prioritizes environmental, social, and corporate governance issues to create long-term value and competitive financial returns.

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The New Way of Doing Business in Boston, MA

Business and organizational sustainability is a complex issue in Boston, with many stakeholders and perspectives. It’s also an area where the stakes are high – if we don’t get it right, there will be dire consequences for our communities and the planet.

The good news is that more investors are taking notice of ESG issues when they invest in Boston companies and organizations, including investing on a fixed income. In fact, over the past decade institutional investors have been increasingly incorporating Environmental, Social and Governance factors (Factor Style Investing) into their investment decisions. And soon it will be impossible to win any RFP’s without it.

We want everyone (not just big institutions in Boston) to be able to incorporate ESG-related risk into their actions because Companies that don’t adapt to these changes will not survive. This change has many companies in Boston scrambling to figure out how they can stay competitive and be profitable while also contributing to a better future.

ESG The Report is one solution that helps businesses in Boston find their niche in this new landscape by providing information on risks and opportunities related to environmental, social and governance factors affecting them today. Our report offers insights into what investors are looking for from companies in Boston and around the globe.

ESG Frameworks provide investors with insight into how companies are performing in terms of corporate governance, social issues, labour standards and environmental impact. Ask about our ESG Frameworks package to help you get started on making your company, department or organization diverse, equitable and inclusive for all stakeholders.

You may also want to read about Passive Investing methodologies.