‘Looking for Something that Isn’t There’: A Case Study of an Early Attempt at ESG Integration in Investment Decision Making

Abstract

The focus of this paper is on the challenges and potentials of ESG integration which are explored through a case study of the use of ESG data in investment analysis and decision making by an equity investment team. Whilst current regulatory efforts place faith in the development of common ESG disclosure standards to resolve ‘impediments’ to ESG integration, our case points to more fundamental discontinuities between financial and ESG accounting inscriptions that question both its feasibility and adequacy. In relation to feasibility, the case points to the ambiguity of ESG issues in terms of their possible value relevance, to how ESG data quantification and aggregation readily occludes its significance, and to the difficulty of attaching a monetary value to ESG data in either an aggregated or disaggregated form. Consideration of ESG issues is then further constrained by the spatial boundary of the ‘entity’ that financial accounting performs, and the short temporal ‘horizon’ of the financial projections of the entity’s future performance that it enables. We conclude that, whilst increasingly attractive to investors, the UNPRI’s limiting of ESG ‘risks’ to those that are potentially ‘financially material’, may itself be creating a false sense of security both for investors and their clients.

Key words:

• Accounting inscriptions
• ESG integration
• ESG ratings
• Principles for Responsible Investment
• Translation

Acknowledgements

The authors would like to thank the Associate Editor, Carlos Larrinaga, and the two anonymous reviewers for their patient and very constructive comments and guidance throughout the review process. We would also like to thank our colleagues Matthew Egan, Brendan O'Dwyer, Jane Andrew and Sue Newberry for their comments and encouragement with various iterations of the paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Current as at time of writing.

2 For anonymity, all of the names of organizations, teams and individuals etc have been changed.