This could be the year that measuring ESG investing grows up, thanks in large part to investor demand.
"The industry has definitely come a long way over the past decade to really measure ESG," said Michele Giuditta, director of institutional and lead ESG analyst for Cerulli Associates in Boston.
"Asset managers are using data sets that provide metrics and scores. We are seeing a growing number of institutional investors requesting integration" of those metrics with performance, she added.
Cerulli found that 79% of asset managers polled are offering some type of ESG reporting to asset-owner clients, with the most common metric being net carbon footprint. Many of the most widely used metrics are tied to the 17 United Nations-backed Sustainable Development Goals, which are now a decade away from their 2030 target date.
"You are seeing a lot of pension plans and other institutions talking about how they're putting this into place. The nice thing is, a lot is available for free," Ms. Giuditta said.
"A lot is very time-consuming. In many cases, they are picking one or two methods," she said, or teaming up with non-profit organizations or consultants to help with data analysis. Additionally, asset managers report using multiple data sets or raw data to build their own data points most relevant to their clients' interests, she noted.
A lot also depends on how companies disclose their ESG-related activity or risks. A 2020 proxy season preview released by the EY Center for Board Matters found that for investors trying to assess how companies are managing environmental and social risk and opportunities, 85% cited a lack of standardization and perceived gaps in company reporting.
That is expected to change with growing adoption of 77 industry-specific sustainability accounting standards published in November 2018 by the Sustainability Accounting Standards Board. The standards and a "Materiality Map" are aimed at helping companies identify and communicate performance on the sustainability issues most relevant to financial performance. SASB CEO Janine Guillot credits the organization's investor advisory group, with 44 member organizations and a collective $33 trillion in assets under management, for much of the momentum. Since the SASB standards were codified, more than 100 companies in 15 countries are using them to communicate with investors.