On September 29, APX Stream hosted a webinar titled "ESG Due Diligence: How Databases and Subscribers are Using Data to Manage a $53 Trillion Opportunity."
Rather than examining ESG from a philosophical angle, the discussion offered three distinct practical perspectives: those of global databases, investment consultants, and ratings agencies. Despite technical challenges, the panel discussion proved highly valuable.
Panel Members
- Manesha Sampath, Vice President at The RockCreek Group (investment consultant specializing in ESG and DEI placements)
- Jim Monroe, Senior Consultant at Investment Metrics (style factor research expertise)
- Ben Webster, CEO of OWL Analytics (ESG data firm with quantitative ESG measurement model)
Key Insights
ESG Outperformance
According to Investment Metrics' research report "What's ESG Got to Do With It?", high ESG stock portfolios exceeded market performance by approximately 12 percentage points annually when adjusted for sector and factor biases. Interestingly, comparable alpha was not identified elsewhere in the US market during the same period.
Since November 2020, ESG stocks have rallied, potentially driven by momentum or growing industry relevance. Alternatively, companies emphasizing environmental, social, and governance accountability may be positioning themselves competitively for future regulatory environments, resulting in higher valuations.
The Value of Transparency
Manesha emphasized that managers leveraging ESG and DEI as marketing tools must demonstrate complete transparency regarding internal policies and practices. RockCreek, a signatory to the ILPA Diversity in Action initiative, requires managers seeking inclusion in their RockImpact database to complete a comprehensive application.
Critical evaluation areas include:
- Security selection process for incorporating ESG
- Business framework structure
- How values reflect across organizational operations
Managers demonstrating transparent commitment to ESG and DEI advancement can earn consideration, even with developing strategies.
ESG Rating Correlations
Ben Webster noted significant differences between bond rating agencies—whose correlations exceed 95%—and ESG ratings, which correlate at approximately 40-50%, representing improvement from previous 30% levels.
OWL Analytics attributes this disparity to subjective ESG scoring. Challenges include:
- Lack of regulatory standardization in Europe
- Varied cultural interpretations (diversity differs significantly between US and Japan)
- Different industry prioritization among rating agencies
- Limited standardized data accessibility
OWL addresses this through a quantitative methodology:
- Aggregating comprehensive ESG source data
- Identifying key industry-specific ESG issues per source
- Isolating consensus among sources
- Weighting components by source agreement levels
Conclusion
The complete webinar discussion encompasses substantially more content than this summary. Regardless of individual ESG perspectives, the investment industry recognizes it as critically important long-term, requiring serious attention from managers, consultants, and asset owners.