ESG disclosure by US fund managers needs more detail if it is to be meaningful, according to market insight consultancy Util.
It said managers using the UN Sustainable Development Goals must report on the Environment, Social and Governance dimensions of portfolios separately. Otherwise, conflicting pressures within those categories threaten to make the measures useless.
“In a complex global economy, there are few obvious, absolute ‘good’ or ‘bad’ investments,” the report said. In fact, ESG objectives often conflict so that it is difficult to understand how well a fund manager is meeting its goals. “Bundled ESG scores aren’t the answer,” it concluded.
For example, resource extraction undermines social and environmental objectives, but it boost economic growth. That shows that even on one metric an investment could be considered both good and bad. For example, social media supports and undercuts gender equality in different measures, it said: “Despite well-documented abuses, it improves women’s healthcare and education: distinct targets with correlated outcomes.”
The report used machines learning algorithms to rank funds in different categories.
The report comes at a time of disagreement about ESG disclosure in the investment industry. For example, the US Securities and Exchange Commission proposed rules this year aimed at tackling greenwashing. That is where businesses state unfounded claims about the ethical nature of their activities or investing.
It proposed that fund managers must clearly categorise their ESG strategies to make them more comparable. Those disclosures would be subject to greater scrutiny and regulation, it said. “Funds claiming to achieve a specific ESG impact would be required to describe the specific impact(s) they seek to achieve and summarize their progress on achieving those impacts,” it said.
But Black Rock, the world’s largest asset manager, was unhappy with the proposals, according to Reuters news agency.
The organisation wrote to the SEC in response the the public consultation saying it agreed with the regulator’s aims but not its means of improving transparency to the sector.
“The proposed requirements would increase the potential for greenwashing and lead to investor confusion,” BlackRock wrote in its letter Reuters said. “The granular nature of requirements will inevitably lead to the disclosure of proprietary information about these strategies, reducing the competitive advantage of those unique insights.”