There are more and more organizations scoring and ranking companies according to various ESG criteria, such as Sustainalytics, that fund managers can use to create a sustainable portfolio.
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But methodologies vary widely, so companies can get contradictory scores. Also, ESG investing often just lumps a bunch of disparate issues together.
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Many investors would consider good governance a standard requirement for their investments. Erika Karp is skeptical of ESG rankings and the reports that put huge numbers on the size of the sustainable investing industry. After spending more than a decade at UBS, in she created the impact investment advisory firm in New York. As well as managing money for clients and advising them on sustainable investment strategies, Cornerstone puts a lot of its energy into due diligence on the asset management industry as a whole.
Making the grade
Its goal is to make sure that when a fund manager says their fund meets specific environmental or social goals, it really means it. With no standardized rules, there are no penalties for greenwashing. Karp has worked on Wall Street for more than 25 years. At UBS, the socially responsible investing team was incorporated into her team, global sector research.
Social Responsibility: It All Comes Down to People
Ten years ago, Karp kept this revelation mostly to herself. Sometimes you need to be disruptive from the outside. To make her point, Karp cited one of the highest-profile areas of ESG investing: gender-equality funds. However, these funds are still examples of how hard it can be to meet certain objectives.
Even with improved methodologies it can be hard to identify the right companies to invest in given the constraints many investors face such as jurisdiction or market size.
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Right now there is a false sense of security or satisfaction if an investor buys an ESG product that might not be what the investor thinks it is. The problem is that demand for ESG products has now outpaced what asset managers have the capabilities to provide.
Take climate change as an example. These require different metrics and analysis.
The same applies for financial products. For its part, Cornerstone sets strict requirements for funds to be deemed worthy of its platform.
Sustainable investing risks becoming a victim of its own success
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