Sustainable investing is becoming mainstream. $30 trillion of assets worldwide rely in some way on Environmental, Social, and Governance (ESG) data, a figure that has grown 34% since 2016.
The problem is that ESG data are noisy and unreliable. In our research, the correlation among prominent agencies’ ESG ratings was on average 0.61; by comparison, credit ratings from Moody’s and Standard & Poor’s are correlated at 0.92. This ambiguity around ESG ratings creates acute challenges for investors trying to achieve both financial and social return.
The Sustainability Initiative is working to solve this problem through a program of research to improve the quality of ESG measurement and decision making in the financial sector. Our first step was to characterize the problem in our paper “Aggregate Confusion: The Divergence of ESG Ratings”.
Now, we are seeking corporate member participation by asset owners and managers to chart a course toward more rigorous, coherent methods for ESG integration.
Becoming a member of the Aggregate Confusion Project
Each member organization will have slightly different business objectives, internal capabilities for ESG research, and priorities among ESG issue areas; but broadly we understand there to be a few tasks common to all:
Reduce the level of noise in measuring specific ESG categories such as labor treatment, carbon emissions, and product safety;
Understand the effect of ESG-driven investment flows on stock price and firm behavior;
Develop smarter ways to aggregate ESG factors into composite indices;
Reliably assess investor preferences to enable ESG indices to be more customized and attuned to investors’ values.
Building a sustainable investment capability inside your firm is a process of engaging people and building their skills and knowledge. Our intention is that members will have access to our top researchers, and the opportunity to engage with our entire team and suite of activities to build your firm’s capacity.
Roberto Rigobon | Society of Sloan Fellows Professor of Applied Economics, Co-Faculty Director, MIT Sloan Sustainability Initiative
Florian Berg | Research Fellow, MIT Sloan School of Management
Julian Kölbel | CSP Head of Research, Post-Doc, BMW Foundation Herbert Quandt Fellow, Research Affiliate at MIT Sloan
Jason Jay | Senior Lecturer, Director, MIT Sloan Sustainability Initiative
For more information please contact firstname.lastname@example.org