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A new collaboration between MIT’s Sloan School of Management and a Massachusetts pension fund looks to improve the measurement of environmental, social and governance data in the investment and financial sector.
State Treasurer Deborah Goldberg and the Massachusetts Pension Reserves Investment Management Board (Mass PRIM) have partnered with MIT Sloan on the Aggregate Confusion Project, a research project through the MIT Sloan Sustainability Initiative to improve how ESG is evaluated.
Approximately $30 trillion of assets worldwide that rely on ESG data, the treasurer’s office said in a statement, adding that “measurement and divergent ratings on ESG performance from different rating agencies are a challenge and can dampen the ambition of companies to improve their ESG profiles.”
“We believe companies that operate with consideration to ESG issues are higher quality investments that make a positive impact in the community and yield better performance over the long term,” Goldberg, who is chair of the Mass. PRIM Board, said in the statement. “This collaboration will improve Mass PRIM’s ability to rate a company’s ESG impact by providing us with the most current research and enhanced methods for measuring ESG factors when evaluating investments.”
As the founding member of the project, Mass. PRIM will help inform research questions and methodology for the MIT research team, while also providing a testing ground for new approaches.
“We believe we can do better in evaluating companies’ ESG performance, and through this relationship with MIT we will have access to the best talent and researchers studying ESG measurement and ratings,” Michael G. Trotsky, executive director of Mass. PRIM, said in the statement. “This is a unique opportunity to work with one of the most prestigious research universities in the world and have early access to this important set of data.”
In a separate statement last week, MIT Sloan said measuring ESG remains a challenge because ratings can diverge substantially from rating agency to rating agency, causing “real-world consequences.”
“Corporate stock and bond prices may not correctly reflect ESG performance as investors struggle to accurately identify outperformers and laggards,” the statement said. “Divergence can also dampen companies’ ambition to improve their ESG performance due to the mixed signals they receive from rating agencies.”
The project has four key goals, according to the statement:
- Reduce the level of noise in measuring specific ESG categories, including labor treatment and carbon emissions;Understand the effect of ESG-driven investment flows on stock price and firm behavior;
- Develop smarter ways to aggregate ESG factors into composite indexes;
- Reliably assess investor preferences to enable ESG indexes to be more customized and attuned to investors’ values.
Earlier this year, John Traynor, executive vice president and chief investment officer at People’s United Bank, said at a Greater Boston Chamber of Commerce event that investors’ concerns about environmental, social and corporate governance topics were gaining momentum.
