To ethically invest, or not?

As a second lockdown project (yes, we in the UK are nuts enough to try it twice), I’ve been sifting through my old paperwork. I came across this headline Newsweek article from 2009 that features research I helped lead in ESG — Environmental, Social and Governance investing.

For 10 years from 2004–2014, I worked as an ESG analyst first with Trucost — whose methodology drives the S&P ESG indexes as well as MSCI ESG which provides research to a substantial portion of ethical investing.

Below we see 11 year old data from Trucost (prior to its S&P acquisition) and KLD (prior to its MSCI acquisition). I’m proud to have worked in this space long before it was trendy, but also conflicted by its success.

JP Morgan earlier this year released a report saying that $1 trillion are in true ESG assets, and about 45 trillion are in broadly defined ESG assets. That’s a huge difference in the mere definition.

The other problem I have with ESG is what quants call overfitting the curve. That’s like looking up to the night sky and creating images such as the Orion the Hunter, the Big Dipper etc. out of a select group of stars. There is very limited ESG data that companies publish once a year and so many ways to slice and dice it, any graph you create from ESG data is like creating mythical creatures out of the stars

Lately I’ve been urged by investor friends to incorporate my background into what I do now — educating on what works for long term investing.

What do you think?

Mallika Paulraj is the creator of The Superinvestar Framework which teaches investors how to make confident investment decisions. You can download your own copy of Ten Timeless Principles From The World’s Greatest Investors here. Her book How The Best Invest, which outlines the method, is available on Amazon.

Sign up to her weekly Four Minute Investing note via her website.

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Mallika Paulraj

Mallika Paulraj

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Creator of The Superinvestar Framework | Author of How the Best Invest — Make Confident Decisions Like the Investing Superstars