The Social Origins of ESG?: An Analysis of Innovest and KLD

34 Pages Posted: 30 Jan 2019

See all articles by Robert G. Eccles

Robert G. Eccles

University of Oxford - Said Business School

Linda-Eling Lee

affiliation not provided to SSRN

Judith C. Stroehle

University of Oxford - Said Business School

Date Written: January 18, 2019

Abstract

This paper uses the study of two cases to exemplify the “social origins of ESG” argument made by Eccles and Stroehle (2018). First, we recap the history and characteristics of two different ESG data vendors, KLD Research & Analytics (KLD) and Innovest Strategic Value Advisors, Inc. (Innovest). We show how the “mainstreaming” of ESG resulted in a market demand for ESG data with higher coverage, more consistent methodology and a focus on financial materiality, which in turn led MSCI to favor value-driven Innovest over values-driven KLD. Second, we underline how KLD assessments fundamentally changed after 2010 and are now used exclusively by academic researchers, even as investment professionals adopted value-based datasets, and show how an additional layer of social construction is applied when academics use aggregate measures of KLD. In the paper we join the call for more explicit contextualization of ESG data, highlighting that both, practitioners and academics, need to better understand the social construction which underlies analyses with nonfinancial indicators.

Keywords: Sustainable Investing, ESG, Non-Financial Data, Social Construction

Suggested Citation

Eccles, Robert G. and Lee, Linda-Eling and Stroehle, Judith, The Social Origins of ESG?: An Analysis of Innovest and KLD (January 18, 2019). Available at SSRN: https://ssrn.com/abstract=3318225 or http://dx.doi.org/10.2139/ssrn.3318225

Robert G. Eccles

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Linda-Eling Lee

affiliation not provided to SSRN

Judith Stroehle (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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