The limitations of relying too heavily on ESG data

The reporting of ESG data is a relatively new field. MSCI only started rating companies in 2006. Given the increasing interest in the area, there is a growing body of research testing the link between ESG factors and investment performance. Although a selective review of the research suggests ESG ratings add value, we are wary of the inherent limitations of relying too heavily on ESG data in our process. The first limitation is the lack of standardisation and legal authority given to the quantification and disclosure of data by management teams. Unlike the accounting profession - whic...