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ESG Data: Biases and Limitations

April 25, 2018

Months ago, I saved an issue of Journal of Environmental Investing fully intending to read it—and after carrying it with me for more than 50,000 air miles, I eventually did. I’m glad I held on to it. With the proliferation of ESG (environmental, social, and governance) data, ratings, and indexes, it is helpful to see these metrics considered comprehensively and with some perspective, divorced from the marketing packaging that seems to drive much of the related discussion. In particular, the first section on The Ecosystem of ESG Data, with contributions by Dan Etsy and Todd Cort of Yale University, is particularly useful. This is not to suggest that we agree with all points made or even that within Aperio we all have a uniform view but rather that we found it to be a thoughtful presentation of the issues and a great starting point for further research and discussion.

No data set or rating is ever perfect nor removed from the subjectivity of the creator, but in order to make the most informed decisions about its use, it is important to understand what biases and limitations are built in. For each investor and user, what is acceptable and what isn’t will likely vary.

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