ESG had been an investment darling for years, but recent results suggest it’s starting to cool. So has ESG peaked? The short answer: it’s complicated.

You don’t have to look far to see how environmental, social, and governance (ESG) factors are taking center stage in many of our daily lives.

Thinking of the ‘E’ in ESG, the global impact of climate change is hard to ignore. According to the US National Oceanic and Atmospheric Administration, June 2022 was Earth’s sixth hottest month on record.[1] In recent years, the ‘S’ has moved into the spotlight as companies address concerns about employee well-being. While the ‘G’ may sometimes feel like an afterthought, governance is often what pushes firms to make bold changes in response to social equity, climate change, and overall stronger corporate governance.

Incorporating ESG into Decision-Making

Businesses are increasingly owning up to their responsibility to understand and respond to these risks and help build a stronger and sustainable global economy.

Yet as portfolio managers invest today for the proverbial “promising tomorrow”, there remains a lingering challenge of how to incorporate ESG into their decision-making. Many investment firms are already working from siloed, fragmented technology that limits data integration and hinders their ability to insightfully use data in investment decisions. ESG data is no different.

Complicating matters, May 2022 data from Bloomberg found the biggest class of ESG ETFs had outflows for the first time in almost six years.[2]

If investment firms want to continue their pursuit of ESG investments – an element that remains vital to their social license – they must be able to demonstrate strong returns while contributing to a more resilient economy.

That starts with effective data management and powerful tools to decode what investments meet ESG criteria and what fall below standards.

Evaluating ESG Performance

To evaluate ESG performance, firms must be able to ingest and aggregate data into a unified, normalized data model. They also need the right tools to detect data quality problems and to effectively report performance results to stakeholders.

If that sounds like a lot of moving pieces, Arcesium can help. We designed our advanced data, operations, and analytics capabilities to enable financial services firms to take command of their investment lifecycle. Our unified data platform’s inherent, out-of-the-box awareness spans asset classes, lifecycle events, and geographies to help modernize and scale operations, accelerate analytics and reporting, and deliver in-depth business insights.

 

SOURCES
[1] National Oceanic and Atmospheric Administration, June 2022 was Earth’s 6th warmest on record, July 14, 2022
[2] Bloomberg, ESG Investment Cools as the Sector’s Notoriety Cools, June 16, 2022

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