[A] growing body of evidence now suggests that incorporating ESG issues into capital-allocation decisions makes financial sense. Sure, it’s not as easy as “use these ready-to-go ESG data and use some simple ESG screens, and you will do well.” It takes more work than that. At its core, it’s about understanding which environmental, social, and corporate governance issues are financially material for each industry. It’s about making sure that you get good value for the price you’re paying for the ESG attribute you want in your portfolio. This requires understanding different strategic and common ESG practices with different value implications.
Investing takes work. But despite all of this, even if you do not believe that ESG factors will improve performance, I haven’t seen any recent evidence that integrating material information about ESG will hurt performance.
The third argument relates to capabilities. The usual argument is: “We can’t get it done,” meaning that the data are not available or reliable, or that we do not have the expertise to evaluate it. Yes, data still present a major obstacle. But the reality is that the information infrastructure has improved dramatically over the years.