‘Looking for Something That Isn’t There’ : A Case Study of an Early Attempt at ESG Integration in Investment Decision Making

The focus of this paper is on the first of the UN-supported Principles for Responsible Investment - ‘We will incorporate ESG issues into investment analysis and decision making’ - the challenges and potentials of which are explored through a case study of an early attempt at ESG ‘integration’ in an equity investment team. The analysis is framed through drawing on literature which views both financial and ESG accounting not as passive representations of independently existing phenomena, but rather as ‘inscriptions’ which are both ‘inherently incomplete’ and ‘performative’. Whilst current regulatory efforts place faith in the development of common ESG disclosure standards to resolve ‘impediments’ to ESG integration, our case points to more fundamental discontinuities between financial and ESG accounting inscriptions that question both its feasibility and adequacy. In relation to feasibility, the case points to the ambiguity of ESG issues in terms of their possible value relevance, to how ESG data quantification and aggregation readily occludes its significance, and to the difficulty of attaching a monetary value to ESG data in either an aggregated or disaggregated form. Consideration of ESG issues is then further constrained by the spatial boundary of the ‘entity’ that financial accounting performs, and the short temporal ‘horizon’ of the financial projections of the entity’s future performance that it enables. We conclude that, whilst increasingly attractive to investors, the UNPRI’s limiting of ESG ‘risks’ to those that are potentially ‘financially material’, may itself be creating a false sense of security both for investors and their clients