Scores versus conviction
Finding companies that benefit from a positive externality can therefore represent an investment opportunity, particularly if fundamental research can help investors uncover and appreciate them before they are widely recognised by the broader market.
Indeed, rating agency ESG scores typically focus their attention wholly on the negative side of the ledger: companies begin the assessment with a perfect record that is progressively marked down as imperfect practices come to light in the analysis.
In this view of the world, those that ‘do no harm’ are equated with ‘doing good’. However, a more holistic approach to ESG integration should be applied, one that acknowledges and attempts to quantify the subtle positive externalities that some companies impose on society and the alternative assessment of their value when seen in this light.
