‘Looking for Something That Isn’t There’: A Case Study of an Early Attempt at ESG Integration in Investment Decision Making

forthcoming at European Accounting Review

53 Pages Posted: 27 Oct 2021

See all articles by Anna Young-Ferris

Anna Young-Ferris

University of Sydney Business School

John Roberts

Univerity of Sydney Business School

Date Written: October 21, 2021

Abstract

The focus of this paper is on the first of the UN-supported Principles for Responsible Investment - ‘We will incorporate ESG issues into investment analysis and decision making’ - the challenges and potentials of which are explored through a case study of an early attempt at ESG ‘integration’ in an equity investment team. The analysis is framed through drawing on literature which views both financial and ESG accounting not as passive representations of independently existing phenomena, but rather as ‘inscriptions’ which are both ‘inherently incomplete’ and ‘performative’. Whilst current regulatory efforts place faith in the development of common ESG disclosure standards to resolve ‘impediments’ to ESG integration, our case points to more fundamental discontinuities between financial and ESG accounting inscriptions that question both its feasibility and adequacy. In relation to feasibility, the case points to the ambiguity of ESG issues in terms of their possible value relevance, to how ESG data quantification and aggregation readily occludes its significance, and to the difficulty of attaching a monetary value to ESG data in either an aggregated or disaggregated form. Consideration of ESG issues is then further constrained by the spatial boundary of the ‘entity’ that financial accounting performs, and the short temporal ‘horizon’ of the financial projections of the entity’s future performance that it enables. We conclude that, whilst increasingly attractive to investors, the UNPRI’s limiting of ESG ‘risks’ to those that are potentially ‘financially material’, may itself be creating a false sense of security both for investors and their clients.

Keywords: Key words accounting inscriptions, ESG integration, ESG ratings, risk, financial materiality, Principles for Responsible Investment, translation.

JEL Classification: M41

Suggested Citation

Young-Ferris, Anna and Roberts, John, ‘Looking for Something That Isn’t There’: A Case Study of an Early Attempt at ESG Integration in Investment Decision Making (October 21, 2021). forthcoming at European Accounting Review, Available at SSRN: https://ssrn.com/abstract=3950851

Anna Young-Ferris

University of Sydney Business School ( email )

H69 Economics and Business Building
Sydney, NSW 2006
Australia

John Roberts (Contact Author)

Univerity of Sydney Business School ( email )

H69 Economics and Business Building
Sydney, NSW 2006
Australia

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