New Project New Perspectives

Starting my sustainable investment research project has already expanded my understanding of and taught me to think about the ESG and impact investing sectors in a different way. My team’s project deal with how investors utilize sustainability standards in their decision making and operations as well as whether using sustainability standards are correlated to higher ESG rankings. Prior to beginning the project, I only had a theoretical knowledge about how investors manage sustainability considerations when investing. The preliminary research my team has conducted has been a deep dive into sustainability standards, how they are developed, their benefits and drawbacks, and how different consumers use them.  

The first thing I learned during our research was the difference between the standard makers and raters. While I always assumed that organizations that grant companies ESG or sustainability scores created the metrics they grade on that is not in fact the case. Oftentimes these rankers utilize standards created by third parties, like our client, to qualify their conclusions. I was struck by how rigorous the research is that goes into defining these corporate sustainability standards and how granular they become, addressing nearly every impact a business could have internally, locally, and globally. This makes me confident that there are in fact meaningful ways to measure companies’ social value on top of their financial value. Unfortunately, this rigor rarely seems extend to actual rankers who pick and choose which standards to apply companies and can give an incomplete picture of a company’s real social impact. I hope that through our project we can demonstrate that investors that consider more sustainability standards make more socially conscious business decisions.

One of the issues we encountered early in our project was narrowing the scope of our deliverables. From what we understand so far, my team feels we are working on two separate but interconnected tracks. The first is understanding how investors use the standards our client has developed and the second is whether using those standards correlates with higher ESG scores from ranking agencies. These are both large tasks in and of themselves to complete in the timeframe we have and so we have been discussing among ourselves and with the client how to refine the project parameters and still deliver a product that will be useful to their organization. 

While we have not yet finalized the final scope of the project we have tried to gain a better understanding of our client’s priorities in order to present them with some options that will be manageable on our end and acceptable on their end. One example is our suggestion to generate some case studies of how investors use sustainability standards rather than creating a full dataset which would require several interviews. Another example is determining whether there are any subsets of companies our client is particularly interested in looking at and focusing on those. The client has been receptive to our suggestions and my team is looking forward to continuing the conversation. 

Overall, the start of the sustainable investing consulting project has been an enlightening introduction to a side of the ESG field I do not know a lot about. Even now I feel that I have a more nuanced understanding of articles I read that talk about social enterprises or impact investing. Are those actors really acting in the best social interest or have they learned to game an imperfect system of ranking?