As several scandals hit the financial industry on sustainable investments in the last few weeks many asset managers are wondering how they can ensure they are offering the expected ESG quality to their clients.

The appetite for sustainable investment is growing fast. Companies adhering to the UNPRIs represent collective assets under management of $121 trillion.

While the Global Sustainable Investment Alliance reports that global sustainable investment reached $35.3 trillion in 2020, increasing 15 percent in the last two years and representing approximately a third of the total asset under management.

Swiss Sustainable Finance reveals that the total volume of sustainable investments in Switzerland reached 1.5 trillion Swiss Francs in 2020 increasing by 31 percent over the previous year.

Is this trend temporary or a sign of a real change of paradigm?

Statements from major financial actors – like the one issued by IMF in 2019, establishing a direct link between sustainability and financial stability, tend to demonstrate that we are facing a deep change of paradigm rather than a mere trend. Including non-financial risks factors like Environmental Social and Governance criteria are today an integrative part of a global risk management strategy.

However, this very promising and deeply rooted trend might be slowed by the fear of greenwashing and the lack of generally accepted standards to ensure transparency about the ESG quality.

ESG data market: opaqueness and confusion

Following the increasing demand, the market for ESG Data has gone through a major transformation. In 2021, five main suppliers – ISS, Moody’s, Morningstar, MSCI and SNP Global – are dominating the ESG data market, competing with different proprietary methodologies to win shares of a lucrative market. Big data, AI and fast technologic evolution are contributing to delivering more accurate data.

How can Asset Managers stand out from the «green crowd»?

The first challenge for Asset Managers consists in selecting one or more ESG data providers with mostly non-transparent and often diverging approaches. According to various recently published academic studies, divergences between ESG data providers are significant. But while relying on a single provider could be seen as an easier and cheaper solution, it opens the risk of a biased and narrow perception of a complex reality.

Associated risks are real and measurable: In a recently published research by Harvard University, Prof. George Serafeim shows that top ESG Rating agencies' disagreements are directly linked with higher volatility and lesser predictability of stock prices.

The independent verifier to double-check the ESG quality

The intervention of a neutral third party in the Asset manager – Client relationship helps to create a common ground for discussion, to establish a frame of reference for communication; encouraging readability and comparability of information. As a way of consequence, strengthening trust: By relying on outside assessment, Asset Managers demonstrate their commitment to transparency and accountability.

The ESG Consensus® methodology: built on real investment decisions

Developed by Conser, ESG Consensus® is a meta-analytical tool based on the market’s collective intelligence, from which it extracts two cornerstones variables: ESG quality on one side and the dispersion of ESG opinions of Asset managers on the other side.

This methodology is built on the conviction that aggregating a large number of real investment decisions, which are themselves based on various sources and methodologies, is allowing for a truthful image of the quality of underlying assets. Measuring the dispersion of view offers a forward-looking view to the model by anticipating changes in the market’s convictions.

How can Conser help you?

The ESG Consensus ® is a neutral and user-friendly tool adopted by a growing number of leading asset managers and asset owners to verify and monitor the ESG quality of their portfolios. It is available as a pay-per-check and on an annual fee basis.