Breakout A: Identifying Alpha

BREAKOUT A: “Identifying Alpha”

Rapporteur: Caitlin Ajax


  • David Richardson, Impax
  • Diana Glassman, Integration Strategy
  • Karina Funk, Brown Advisory

This breakout session focused on the problem of identifying useful ESG metrics, as well as the best methods for incorporating ESG data into existing financial decision-making frameworks. Panelists agreed that there are currently no definitive methods for separating useful from non-useful ESG data—it is too easy for investors today to ignore ESG data altogether. Also, there is no universal method for evaluating and incorporating ESG data into sustainability and financial reports, so companies that do evaluate these factors often do so in different ways. Moreover, investors looking for definitive alpha-beta correlations between ESG data and financial market risk exposure might not find them. However, investors looking for these correlations might be asking the wrong question, since there are strategic reasons for prioritizing ESG data that have nothing to do with market risk exposure (beta). Financial actors should be looking at ESG as a value-creating business opportunity, or a “global mega-trend,” rather than a mere “concern” over environmental and social issues. While not every investor sees ESG factors as a “concern,” every investor wants to add more value to the companies he or she invests in. By framing ESG as a business opportunity, activities that promote sustainability are viewed as adding value to the company by way of a long-term, proactive financial strategy. Starbucks, for example, responded to activist pressure by incorporating an offensive ethical coffee certification strategy into its business model, and it proved financially successful. Panelists agreed that so long as sustainability and ESG metrics are viewed as “ends” rather than “means” of facilitating strong company financial performance, there will continue to be wide variance in how this data gets incorporated into company reporting and investor decision-making, if at all. There are several financial metrics into which ESG information could easily be integrated, although there is also a vicious cycle of investors and C-suite executives failing to ask for these simple financial metrics, let alone ESG data—investors and executives alike should request this information. In the future, financial metrics that reflect ESG information should be structured with universal standards that can be tailored to individual businesses. Lastly, panelists discussed the relative positioning of sustainability and corporate responsibility officers within companies. Panelists concluded that these individuals should be factored into the company’s core business strategy, as many companies currently fail to put these officers in positions where they can contribute to the business’s larger financial strategy.