Full article on State Street | Listen Blog
Investment professionals are used to analyzing fundamental value with a set of hard numbers, required by law and audited by an independent firm. Straightforward factors such as stock price, profit margins and overhead are relatively easy to track and evaluate. But in recent years, company valuation is increasingly dictated by emerging factors that go beyond financial statistics: environmental, social and governance, also known as ESG. ESG covers a swath of issues. For instance, how many women sit on your corporate board? Does your supply chain use only fair trade goods? Are your office buildings carbon-neutral? These factors go beyond dollars and cents, but are becoming increasingly vital to success. “Investors see a pivotal role for nonfinancial information in investment decision-making,” Ernst & Young reported in 20171. “As investors come to see non-financial information as increasingly material, they reveal still higher expectations for it being timely, comparable and verifiable.”
But most investors agree that data hurdles are a serious problem to integration of ESG strategies. The hurdles include bias, timeliness, transparency and comparability.