ESG terms and reports can be confusing. Investors should look for companies that are authentic and honest about their goals, and their challenges
- Investors looking to focus on ESG goals might find the inconsistent reporting and broad range of information confusing.
- Experts advise investors to look for authenticity from companies reporting on their efforts.
- The conversation was part of Insider's virtual event "Financing Net-Zero," presented by IDA Ireland, which took take place on Thursday, May 13, 2021.
Investors looking to implement environmental, social, and governance (ESG) strategy into their portfolios may find themselves perplexed by the lack of consistent standards, and the quality of claims made by companies.
"There are a lot of different definitions for what impact means, what ESG means," said Jeff Cohen, director of capital markets integration at the Sustainability Accounting Standards Board. "It can be very easy to get confused or overwhelmed … but ultimately it's about what you are looking to accomplish."
Cohen's comments were made during Insider's recent virtual event, "Financing Net-Zero", presented by IDA Ireland, which took place on May 13, 2021.
This panel, titled "Making ESG Reporting and Data Actionable," was moderated by Rebecca Ungarino, senior finance reporter at Insider and featured Cohen along with Andrew Collins, director of ESG investing for the San Francisco Employees' Retirement System.
Investors are increasingly likely to agree that ESG goals are material to how a company performs, Collins said. "The first step is defining which of those ESG issues are material to you as an investor," he added. "And then beginning to understand how they are material, how they affect investment outcomes."
More than ever, investors want to understand how ESG issues might factor into the company's operations. But the information that companies provide about their ESG goals is not standardized, and span everything from hard data to banal marketing jargon.
"When you have a corporate report that is overwhelmingly positive, filled with information that largely highlights employee volunteerism or corporate philanthropy, that's all very wonderful," Cohen said. "But it's not decision-useful to the investor."
Corporate reports of this kind may also have insufficient data to back up claims, a point that the Securities and Exchange Commission (SEC) highlighted in a recent Risk Alert. The SEC chair, Gary Gensler, signaled a greater focus on ESG reporting during his confirmation hearings.
For investors trying to navigate the many resources available to them, to make good decisions, Collins offered a pragmatic roadmap for getting started.
He said first investors need to decide , "what's your objective for seeking an investment outcome that incorporates [ESGs]? Is it to reduce risk or volatility...or maybe it's to create a positive impact with your capital. Maybe it's a way to avoid investments that you have a moral objection to, as socially responsible investors have been doing for a long time."
Collins said once you've identified the investment goal, it's a matter of finding partners who are authentic in their approach, and realistic about setbacks and challenges that they might face.
He advises that personal engagement is the best way to gauge this. "This is best understood through dialogue with whoever's providing those investment solutions to you," he said. "You want to see that they have conviction ... that it's genuine, that they're being thoughtful and transparent about it."