Chapter 6: Mosaic Theory in Sustainable Investing

Mosaic theory—the process of synthesizing information from many sources to build conviction about a company’s prospects, valuation, or credit-worthiness—has been a central tenet of investing for decades. The emergence of sustainable investing, combined with the ability to access large volumes of structured and unstructured data, has amplified the importance of mosaic theory as well as its complexity. Investors must overcome the natural tendency of a company’s management team to highlight favorable information in corporate disclosures and for auditors and regulators to focus on controls and compliance. Corporate disclosures related to environmental, social, and governance issues should be compared to other relevant data sources to assess a company’s prospects, particularly in the context of evolving stan- dards of corporate conduct from shareholders, employees, customers, and other stakeholders.