“ESG Investing” and other issues for asset managers – A lukewarm Christmas Carol?

There is a growing number of gentle disputes among different ESG research/data product providers, sustainability consultants, asset managers, and activists. The main reason for the growing arguments is lack of knowledge and common understanding. Many of us are worried about this as it can lead to wrong asset allocation and stronger than needed regulation of the asset management industry.

Let’s try to clear some of these issues out. Spoiler: Christmas Carols have an optimistic ending!

One – There is no “ESG Investing”

The “ESG Investing” is an unfortunate choice of expression for describing what is SRI (Sustainable and Responsible Investing). Why unfortunate? Just another expression with no common understanding is counterproductive. Why did it change? Likely because ESG risk integration was better defined and included, and all love new expressions. They tend to confirm that one is part of those that are on top of things. And “ESG” became the new buzzword. Depending on what is the main occupation or target of an “ESG” practitioner, the definition and meaning of the expression is changing accordingly.

Problems it brings

We see a lot of discussions that are dumber than they should be and slows down the sorely needed competence lift in the sector. The expression carries different definitions among the participants of the discussion. Hence, the quality of the exchange is poor. Today, it means anything from all to only one of the known SRI (Sustainable and Responsible Investing) strategies. “ESG funds” is another linked unfortunate expression, it also means all and nothing. We see totally useless performance analysis of “ESG funds” versus “non-ESG funds”. Useless, because these can be extremely different SRI strategies and comparison is often made in the short run. ESG factors, for most, play out in the longer run.


Be precise. In the SRI (Sustainable and Responsible Investing) domain there is a set of strategies that are separate. Some funds have a combination of these. Instead of saying “ESG Investing” use “SRI” (Sustainable and Responsible Investing) and when talking about funds, say Ethical screening strategy, Norm screening strategy, ESG risk integration strategy, Impact strategy, etc. And the correct combination of the strategies where applicable. Simply drop “ESG fund” from your vocabulary. Actually, ESG risk integration is not really an SRI strategy to voluntary choose or not anymore. Can you imagine promoting a fund where not all risks are integrated in the investment decisions? No, this is in reality compulsory.

Two – Draw a thick line between ESG risk integration and Impact

These come from two very different angles. 1) ESG risk integration is considered by most by now to be part of the fiduciary duty (what you are obliged to deliver to your clients, the asset owners), and hence not really something you can opt out of unless you manage an index fund or other non-actively managed fund.  2) Impact (aka Sustainable Investment – EU definition) is an investment strategy you can choose, but by no way a must. (Here many working with impact will tear their hear and say that it is, but it is not from a regulatory angle). Environmental Impact investing shall have an impact on the world so that the climate crisis will be avoided. And Social Impact investing shall improve human conditions in the world. The first 1) will increase risk adjusted returns over time by understanding the risks better and the other 2) accepts to see reduced returns with an uncertain risk alteration in exchange for impact.

Problems it brings

In discussions out there, we meet with asset managers and “consultants” who do not clearly distinguish between these two. If you do not distinguish between them, you do not know what competence you need to build or what services you need to buy. It also means you do not know how to see the different ways these funds should be managed. What is complicating a little though is that even if ESG risk integration and impact investing have very different starting points, there is a place where they meet. Given the ESG risk research (and scoring) holds a good quality and that human beings are willing to change behaviour to have a “positive” impact on the environment and the social conditions in the world, the companies not taking these changes into account will suffer. An ESG research job, will highlight these changing trends, hence a company not having an appropriate strategy will have a lower ESG score than a company with a better strategy (all other the same). Doing ESG risk integration can then in the end lead to increased allocation to the same companies the Impact funds are investing in. Hence, sometimes there may be an unintended impact.


Make yourself a cup of coffee, or tea as I prefer (black, no sugar please). Make an overview of your funds and list the different SRI strategies they have and separately if ESG risk is integrated in the investment process or not. If you practice active management and do not integrate ESG risks, do something about it fast if you plan to keep your clients. Remember that the EU has defined Sustainable Investment as impact, so unless it is an impact strategy you have, they forbid you to talk about sustainable investing or positive impact on the environment or social conditions when promoting the fund. Be precise in your communication around your funds with this clear in your mind where impact and ESG risk integration are in two distinct boxes.

Three – We need to increase competence in the SRI field

All the misunderstandings, differing definitions of expressions, unfortunate expressions coming to life, etc. is an issue we need to solve. From a personal experience, my understanding really made a jump during the studies for my ESG analyst certification (CESGA EFFAS). It gave a good platform for continuing building with the following everyday work as an ESG analyst and sustainability consultant.

Problems it brings

Well, as seen in the points above, lack of knowledge, or headline experts, leads to problems. But of course, there are many other aspects to SRI where increased competence can be of value.


Sign the whole team on for formal education. For anyone having a plan to work in asset management for more than 3 more years, sign up now. There is a wide range of offers out there and you need to choose something that you need. This can be hard when you are new to this, but the main distinguishing factor is whether you need general competence or specialist competence. There are many for the first and less for the second. Examples of the specialist path can be on EU regulatory matters or ESG analyst education. Prioritise an internationally recognised education or training offer rather than a local setup, it’s a global business and local initiatives is adding a risk of confusion. An international will lead you into a common understanding within an international framework.

Four – An ESG score is merely a simple numerical reflection of an ESG risk report

Feel free to read the headline twice because a debate is ongoing, a debate that should not be necessary. It means that it is a score for the ESG risk of the researched company. It is not supposed to be used for impact investing. That said, most impact investing strategies also practice ESG risk integration. And the reason for this debate comes to a large extent from point one, two and three here above! Misunderstood vocabulary, lacking understanding of different SRI strategies and lacking formal training.

Problems it brings

We see a lot of ESG/SRI practitioners on the impact side of the investment industry that now are claiming that ESG scores are without value (a frequent variant is BS), because they now finally discover what it is. Btw, we refuse to use “ESG rating” as it should by no means be mixed up with a credit rating and how the credit rating business is working.


Read and make sure to understand what you are buying, when purchasing ESG research with an ESG score. And ensure you therefore use it right (Important point, see next point: Five). A solution is maybe to introduce Impact score, SDG contribution score (many companies would be disappointed here as there is a lot of misuse of SDGs in sustainability reporting out there!), etc. This way, it will be easier to leave to the ESG score to what it is supposed to do and make investors use it correctly.

Five – Claimed ESG risk integration, is too often fake

Many asset managers with products in Europe published on or before 10 March 2021 that they integrate ESG risk in their investment decisions. This is article 6 in SFDR Level 1. Integrating ESG risk is not to “stare” at an ESG score. But a lot of investors are still doing this, and it does not at all qualify.

Problems it brings

Asset owners are increasingly getting onboard competence in this field and ESG risk integration is very easy to demask if not correctly practiced at the level of the asset manager taking care of their assets. Soon the national FSAs will start to regulate (control) the compliance of the asset manager with regards to SFDR, and many asset managers are taking this far too lightly. But the most important of all is promise to the clients! The expected long-term improvement in risk adjusted returns may suffer from a weak or non-existent ESG risk integration process.


Start training projects with the portfolio managers to make them aware of what this really means, the advantages it offers, and what is expected by the client and the EU regulator. (See also point Three above). There is already resistance here, as the workload for the portfolio manager will increase, sorry to bring the bad news. (The asset managers have found some ways to circumvent this, one of the more popular is “better than average relative ESG score”, a non-sense strategy in my view as the portfolio managers then do not have to understand the underlying ESG risks in the investments and never get beyond the ESG score).

And finally, Six – No, there is no data problem for ESG risk integration

The asset management industry dislikes the EU regulation that will lead to more work and costs. Early, all concentrated on an idea of easily accessible data and some engineers to make solutions that should be quick and cheap. Some asset managers are still there.

Problems it brings

Some asset managers, and particularly some portfolio managers, are dismissing the ESG risk integration arguing that there are too big problems finding data or lacking quality. The same tend to think they do ESG risk integration well enough today anyway. Maybe, likely not.


ESG scores are a numeric reflection of a fundamental ESG research by human beings. For ESG risk integration, there is no data problem! Good news! ESG risk research is like financial research. You work with the data and information you have and assess the ESG risk of a company. And many can substitute the ESG data engineer with ESG analysts, either internally or as a purchased external service, as most do for traditional financial research already today! Actually, the more practitioners get educated in this field, the less they talk about the “ESG data problem”. For some EU regulatory reporting, that is a different story.

Conclusions – “ESG Investing” and other issues for asset managers – A lukewarm Christmas Carol?

Great, as you have now been working your way through the six points here above, it has surely generated some useful thoughts? 2022 is soon here and for all of us it will be an important “ESG year”. All of us will increase our understanding and experience; many will join formal training and education. We will become more precise and gain more useful discussions. Maybe we will see the emergence of Impact scores, SDG score and why not even “quick and dirty AI ESG data” scores.

What is sure is that we will continue to discuss and drive the SRI area and ESG risk integration forward together! Like for Charles Dicken’s Ebenezer Scrooge, maybe some spirits over Christmas will make the deep attitudes in asset management, leading to resistance today, change for full embracement of the future and along with it a readiness to take on the additional work it requires. We at sustainAX wish you all a Merry Christmas and we look forward to many good (read better) discussions in 2022 with you all!

ESG Analyst and Senior Sustainability Consultant

PS. We are here if you need help with supplemental ESG research, supplemental ESG scores, training in ESG Risk Integration or some other topics where we can add value! DS.