Why reports of ESG's death are 'greatly exaggerated'

Efforts to insert more environmental, social and governance criteria into financial markets have run into stormy seas of late — from claims of reduced returns or overly onerous, unclear, and conflicting rules. But Phyllis Costanza, principal and chief social investment officer, advanced portfolio management at Social Investment Solutions, is upbeat. “I do think that rumors of [ESG’s] death have been greatly exaggerated,” she said speaking at a Devex event on the sidelines of the United Nations General Assembly this week in New York. “We are on track to hit $34 trillion in assets under management in ESG by 2026 … That is a huge amount of money moving to things that we hope are responsible.” And when it comes to turning that hope into reliable metrics, Greg Spencer, CEO and co-founder of Common Good Marketplace, is looking at so-called impact-weighted accounts as “the future of ESG.” Incubated at Harvard University, the idea is to value externalities like social and environmental impacts and compare them against traditional financial statements. The result? “You kind of get a net value across the spectrum of social, environmental, and economic,” Spencer said, “and that lets you compare different organizations in a kind of holistic sense of the value that they are delivering.” Costanza added that if investors are going to start taking especially the social component of ESG seriously, then turning qualitative information — such as human rights records in companies’ supply chains — into numbers is essential. “Let’s say we have a client who’s really interested in human rights issues,” she said, “we can put together a fund with companies that have a really good supply chain management process.”