Measurability and comparability of non-financial performance remain the biggest hurdles to ESG investment growth, according to a new report from BNY Mellon.
In a new whitepaper, ‘ESG Investing: Setting a Course for a Sustainable Future’, BNY Mellon says that while ESG (environmental, social and governance) principles are gaining considerable momentum for all investors and their service providers, some critical elements of the new landscape are not in place.
Daron Pearce (pictured), EMEA CEO of Asset Servicing at BNY Mellon, says: “Many challenges lie ahead as institutions and asset managers navigate a path through what is a complex and incomplete eco-system. However, we believe now is the time for all investors to start planning their sustainable future, and we are witnessing much activity in the development of ESG standards, taxonomies and legislative proposals.”
According to the BNY Mellon paper, there is not yet one common set of international standards to validate the ESG credentials of an investment. For now, investors are leveraging industry-level work on definitions, principles and frameworks alongside emerging data sources, from specialists with proprietary evaluation methodologies to new tools from well-established data providers, including ratings agencies.
“The investment industry is on a journey with ESG,” says Pearce. “Sustainable investment has evolved from negative exclusion to positive inclusion. It has moved on from the relatively straightforward approach of avoiding investment in businesses connected to sensitive issues such as gambling and tobacco, to actively seeking responsible investment opportunities that can generate better investment returns and greater social good. This more nuanced approach to sustainable investment requires the development of more complex metrics, benchmarking and monitoring. At BNY Mellon, we are looking into ways of helping clients apply ESG scores to their portfolios and through this determine the correlation between ESG scores and portfolio performance.”
BNY Mellon’s whitepaper, ‘ESG Investing: Setting a Course for a Sustainable Future’, sets out the current issues for sustainable investment, from the work being undertaken by industry bodies to set common principles and frameworks, to the practical challenges that lie ahead for asset owners and asset managers in developing their investment strategies and product ranges.
