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ESG's Journey of a Thousand Miles

We don’t know the destination, but we do understand the direction of travel – as a company Linedata is committed to accelerating ESG-driven decision making by helping asset managers to participate with easy and affordable access to credible data and scoring.

Matt Luff

I have it on very good (Wikipedia) authority that the quote "A journey of a thousand miles begins with a single step" should be attributed to Laozi and not Confucius, but either way it holds very true for the ESG story. There has been a lot written questioning, not the purpose or the principle of ESG (Environmental, Social and Governance) factors investing, but rather the measurement, the availability of data and how best to use it. While these are certainly worthwhile conversations to have, they do not actually effect change in corporations – which is the stated aim of ESG investing. Debating is not doing and arguing is not achieving change.

Nudging companies towards a more sustainable future, better working standards and a positive community impact means the transfer of wealth from companies performing worse on key metrics and towards those that are engaged in improving their ESG position. To bring this about, more managers reallocate capital accordingly, more funds are created with those stated aims, and more customers become confident that the fund will fulfill its objectives.

Obviously good and bad are necessarily subjective criteria, even when they are based on objective data. Additionally, a lack of standardization remains a challenge, as ESG ratings do diverge between evaluating organizations. This doesn’t mean divergent data is not valuable or that a single rating source is insufficient to determine “good” or “bad”. As long as you understand the methodology of the evaluation and agree with the underlying suppositions, using a single independent data provider is still a valid solution and one that supports your firm’s ESG journey.

At Linedata, we know our clients struggle with data selection and data integration. We’ve simplified the process through Linedata Data Management Service and lowered the costs, allowing the use of various strategies with the same data set. These innovations reduce the barriers to entry to this exciting and important market. While there will continue to be varied ways of constructing ESG portfolios, including with a firm’s own internal scoring, regulatory and investor reporting must move toward an independent standard. This will support investor confidence in the scores and strategy and lead to greater allocation to ESG products.

We don’t know the destination, but we do understand the direction of travel – as a company we are committed to accelerating ESG-driven decision making by helping asset managers to participate with easy and affordable access to credible data and scoring. We will achieve more by providing asset managers with an easy-to-use, flexible solution that is able to evolve along with market developments, than by delaying and waiting until we have industry wide agreement on all aspects. After all, more companies active in the space will generate more views and knowledge which helps everyone.

If you believe in ESG as a concept, if you believe your strategy can help effect corporate change, if you believe that what you’re doing can improve the lives of your investors – just do it. Launch your fund, take steps to enact change and the industry will move forward. Taking meaningful action is always more valuable than merely being part of the debate.

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