Impact Investing Myth Transparency
TRANSPARENCY creates confusion & often also conflicting data not net impact clarification. True, but also amazingly simple clarity..
Transparency has many effects.
DUNNING KRUGER EFFECT : The more you know, the less confident you are likely to be.... Wise people are full of doubt. Its is better to move even fail forward than stagnate suffer analysis paralysis & the bystander effect.
Be the change you want to see in the world. Failing = learning.
Fail to act = fail to Learn.
1: Transparency give simple net impact insight: MSCI's sustainable impact exposure % (SIE%) – MSCI ESG/SRI screening fails % (of ETF's op etf.com, etfdb.com & iShares, but not for all investment products.
Impact scores of ETPs: To find highest sustainable impact scores on etfdb.com choose ESG investing in the top menu. > choose E, S or G (Environmentally Responsible, Socially or responsible Governance) > a list with ETFs met disclosed theme data appears. Click [ESG?] in the menu > carbon intensity & sustainable impact exposure % scores of ETP's appear from top to bottom, high to low. (Do not click sustainable impact → whole universe appears. SIE% can be combined with SRI screening % (fail) on etf.com under Sustainability data. All data is delivered by MSCI.
High(est) E & S exposure in ETFs scores combined with E & S themes:
o to etfdb.com top menu offering ESG investing > 41 themes. Half Social
Environment ¼ Governance. For ETP with highest Sustainable Impact exposure % go to ESG investing > choose any ES(G) theme > an ETP list appears with e.g. revenue exposure but for water stress even High Risk Business Segment (%), High Risk Geography (%) Moderate (%) High (%) Exposure Low (%).
Revenue Exposure to Social, Environmental Impact (%) is undisclosed, transparent for members (free month trial) Clarification of MSCI SIE%: https://www.etf.com/sections/blog/evaluating-sustainability-etfs-msci?nopaging=1
2: Transparency gives insights in the importance of sustainable investing for profitability of (sub) sectors (& companies) Bob best-in-class Eccles developed metrics & rating with the Sustainable Accounting Standards Board (SASB) & rated 11 sectors & 55 sub-sectors. https://www.sasb.org/standards-overview/materiality-map/
Eccles nickname comes from his work on The Impact of Corporate Sustainability on Organizational Processes (2012) with Ioannou & Serafeim. https://www.hbs.edu/faculty/Publication%20Files/SSRN-id1964011_6791edac-7daa-4603-a220-4a0c6c7a3f7a.pdf
3 Transparency gives insight in the effect of ESG performance & ESG sentiment (perception): Prof George Serafeim published a paper based in financial & Big Data & AI analysis showing ESG sentiment is factor influencing fund valuation. 'In the presence of negative sentiment a firm’s good sustainability performance is largely discounted'.
Prof. George Serafeim, Harvard Business School Accounting & Management Unit Working Paper No. 19-044. October 12, 2018). Public Sentiment and the Price of Corporate Sustainability https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3265502
4 Transparency shows effects & trends of ESG fund rating on capital flows. The introduction of Morningstar sustainability ratings (globes) in 2016 resulted in capital flows from low(er) rated funds to high(er) rated funds within in 2 years.
MSCI has a color based funds rating system, but has not yet communicated capital flow (effects or trends)
5 Impact Revenue Transparency In 2016. Russell launched Green Revenue indices for FTSE and MSCI a revenue index based on the UN Sustainable Development Goals. These indices give insights in core activities and increased impact activities.
Note that ESG & Sustainability ratings are not perfect, can and will improve … through transparency, comparison & discussion. ESG ratings by different raters differ and combined with improved ESG data systems, materiality & SDG weighing, Big Data and Artifical intelligence analysis will improve insights.