Why thematic investing leads to better ESG analysis

Environmental, Social and Governance factors are now familiar concepts to investors, business owners, governments and regulators. They’re criteria that guide our decision-making beyond pure profit—that add a lens of wider responsibility to our choices, and hold us accountable to them.

The fact that ESG is now a core consideration for the vast majority of institutional investors and wealthy individuals is proof of value—not only in terms of its wider societal impact, but in allowing Asset Managers as fiduciaries to ensure returns don’t suffer.

And yet… Depending on where you look, there are still wild discrepancies between how ESG factors are measured. This makes it hard for investors to confidently and consistently index ESG when making investment decisions. And while regulation is tightening and industry standards are hardening, this lack of clarity still makes companies susceptible to issues like greenwashing.

If you’re a thematic investor, you’ll know that comprehensive, relevant, and nuanced data is one of the best weapons against unclear or obfuscated ESG ratings—and one of the best enablers for socially and financially sound investment decisions.

Here’s why that’s now possible at scale and on repeat.

The clarity conundrum

ESG ratings are essentially information black holes, failing to provide relevant details on why companies are considered compliant or not.

You can see the results; look at comparisons between various leading ESG rating providers and you’ll see ratings are given almost at random. A company may receive totally different ratings, depending on the agency you work with.

And in the face of this inconsistency, investors and regulators are demanding more granularity, to prevent greenwashing and risk, while ensuring fiduciary obligations are met to achieve best returns.

All of this means that Asset and Wealth Managers need to go deeper. Rather than relying on obscure and unreliable ratings, you need to leverage expertise and insights to make transparent, explainable investment decisions.

All of this means you need to expend significant and time-consuming manual effort to find insights of sufficient quality. AI has become an increasingly effective tool to ease the burden on research teams—and combined with the Thematic Intelligence approach, enables next-gen ESG investors to keep process efficiency and accuracy high.