#ESG is all about measurement…right?

by | Jun 15, 2021

A great read from Mike Penrose, Chair of the Investment Committee for Vala Capital’s Sustainable Growth EIS as he makes a strong case for rethinking the way in which businesses are screened in terms of their ESG and impact credentials

There is an old business adage that ‘you treasure what you measure’, and with sustainability and ESG measurements, there are certainly no shortages of metrics and measurements out there to choose from.

Having your own proprietary set of ESG indicators has become de rigeur for many major investment firms.

This is partly because being perceived as being on the right side of the sustainability debate is now an absolute necessity, but also, and definitely more importantly, because the money trickling down through the system from the big investment firms and pension funds are now conditional upon it.

From the pressure coming from initiatives such as Task force on Climate-related Financial Disclosures (TCFD), to the now (in)famous letter written by Larry Fink at the beginning of the year, the ability to quantify the impact your investments have on the climate, the environment, and on society are now an expectation, and no longer an exception.

Measuring sustainability

Unfortunately, when it comes to measuring sustainability, nearly all the indices and methods of measurement out there tend to fall into one of two camps, neither of which we think really hits the mark.

The first is the standard ESG negative screening systems used by many more conventional firms and intelligence indices. These effectively measure data that can be scraped or easily requested, and make sure that organisations have the policies and procedures in place to ensure they are not actively or intentionally causing harm.

Now forgive me for sounding a little obtuse, but surely ‘not actively being bad’ should not be an aspirational goal for most companies. In fact, given what we know today, it should probably be the minimum price of entry for doing business in the modern world.

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