Defective data is a big problem for sustainable investing

ESG considerations have grown from an investing niche to now, almost a standard in the competitive asset manager’s approach to the market.

As usual with technology and concepts still in their adolescence, managers suffer from the lack of trustworthy data in truly useful quantities, and still lack efficient means by which to standardize its collection. That all being said, it’s clear that ESG can’t be ignored anymore, now that it’s stepped into the spotlight.

More than six in 10 institutional investors have changed their approach to voting or have incorporated environmental, social and governance criteria in the past 12 months… the challenge is how to embed sustainable factors as an extra way to see the risks in a portfolio, whether by providing early signs of a scandal or identifying where the cost of pollution or climate change may come back to bite. 

Volkswagen was ranked the most socially responsible carmaker by Dow Jones Sustainability Indices in 2015. Then the VW emission scandal broke, the stock price fell sharply and the company was ejected from the index.