Rating agencies and financial professionals are being urged to provide more realistic and consistent outlooks on Environmental, Social, and Governance (ESG) investments. According to a recent report, the lack of standardized reporting and inconsistent data is making it challenging for investors to gauge the true performance of ESG investments.
The report highlights that while ESG investing is gaining traction, with 62% of institutions now believing there is alpha to be found in ESG, the measurement of ESG performance remains a significant challenge. Professionals rely heavily on third-party ratings and awards, but the lack of consistency in corporate reporting makes it hard to set a clear basis for comparison.
Investors and asset managers are calling for clearer reporting on how ESG strategies are implemented. Nine out of ten institutions believe that asset managers should have clear reporting on their ESG implementation, and 57% think asset managers should be more proactive in developing ESG-labeled funds. This transparency is crucial for gaining investor buy-in and ensuring that ESG investments align with both financial and non-financial goals.
The need for a common language and standardized taxonomy in ESG is also emphasized. Regulators are moving to standardize ESG taxonomy, but investors still need to find common ground for defining expectations. This standardization is seen as key to increasing ESG adoption, with 73% of financial advisors stating that standardized reporting would make it easier to implement more ESG strategies.
In summary, the call for realistic and consistent ESG outlooks is driven by the need for better measurement tools, clearer reporting, and a standardized approach to ESG investing. This will help investors make informed decisions and ensure that ESG investments deliver on both financial and societal objectives.
