MIT, Massachusetts Treasury launch ESG project
Massachusetts Treasurer Deborah Goldberg and the state's Pension Reserves Investment Management board have begun a collaborative project to improve measurement of environmental, social and governance data in the investment and financial sector.
The effort with Massachusetts Institute of Technology’s Sloan School of Management, called the Aggregate Confusion Project, aims to build on research by scholars at MIT Sloan’s sustainability initiative.
ESG elements include a company’s contingency planning, the work environment, its engagement with its workforce and the community.
Mass PRIM's board of trustees announced the project at its meeting on Wednesday.
PRIM manages the $75 billion Pension Reserves Investment Trust, or PRIT, Fund, a pooled investment fund that invests the pension assets of the Massachusetts Teachers', the State Employees' Retirement Systems, and many other public retirement systems in the commonwealth.
Pension funds, Goldberg said, understand the challenges of integrating ESG into the investment process.
“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,” said Goldberg, who chairs the PRIM board and is president of the National Association of State Treasurers.
The effort, she said, will help PRIM rate a company’s ESG impact through current research and enhanced methods for measuring ESG factors when evaluating investments.
While roughly $30 trillion of assets worldwide rely on such data, performance measurement from different rating agencies pose a challenge.
“The information that decision-makers receive from ESG rating agencies is relatively noisy,” Florian Berg, Julian F. Koelbel and Roberto Rigobon wrote in a Sloan working paper.
Three major consequences follow, they said.
Corporate stock and bond prices are less likely to reflect ESG performance as investors try to identify outperformers and laggards. The divergence also inhibits companies from improving their ESG performance, because of the mixed signals. In addition, the ratings divergence complicates empirical research.