CAMBRIDGE, Mass., Oct. 26, 2021 /PRNewswire/ -- Capital markets and regulators are moving fast to integrate Environmental, Social, and Governance (ESG) factors into the investment decision-making process, but struggle with the quality and consistency of ESG data. The MIT Sloan Sustainability Initiative's Aggregate Confusion Project (ACP) welcomes four new investment firms that will help tackle the ESG measurement challenge, and develop methodologies for more rigorous and reliable ESG integration.
To recruit these new founding members, ACP reached out to firms across geographies, and who play different roles in the investment industry. They are MFS Investment Management, AQR Capital Management, Qontigo, and Asset Management One.
These firms join Massachusetts Pension Reserves Investment Management (Mass PRIM) Board, the first organization to join the MIT consortium in July 2020. Over the next three years, members of the consortium will work with MIT researchers to improve ESG measurement and implement new techniques.
"Our five founding members of the ACP will serve as valuable thought partners with our research team," says Roberto Rigobon, the Society of Sloan Fellows Professor of Management and Professor of Applied Economics at the MIT Sloan School of Management. "By providing financial support for the project and sharing their experiences with ESG integration, they will be integral to developing a more robust approach to sustainable investing. The challenges they're addressing in using ESG data will help guide our research and the implementation of new ESG measurement techniques we develop together."
The five member firms' diverse geographies and roles in the investment landscape will give researchers a range of challenges and opportunities to examine. Mass PRIM manages the assets of the Pension Reserves Investment Trust Fund for Massachusetts public employee pension benefits. MFS Investment Management (MFS) is one of the oldest asset management companies in the world and has been credited with pioneering the mutual fund. AQR Capital Management is a global quantitative investment management firm that works at the nexus of economics, behavioral finance, data and technology, providing alternative and long-only investment strategies. Qontigo is a global solutions provider serving financial products issuers, asset owners and asset managers with its comprehensive range of STOXX and DAX indices alongside Axioma analytics and risk tools. Asset Management One is an asset management firm in Tokyo that helps manage the Japanese Government Pension Investment Fund, the world's largest retirement savings pool.
Building on a research paper by Prof. Rigobon and MIT Sloan Research Fellows Florian Berg titled Aggregate Confusion: The Divergence of ESG Ratings, the ACP has advanced four key goals aimed at establishing more rigorous, coherent methods for ESG integration. They are:
- Reduce the level of noise in ESG measurement, both in specific categories such as labor treatment, carbon emissions, and product safety, and in aggregated indices;
- Disentangle the effect of ESG-driven investment flows on stock price and firm behavior;
- Develop smarter ways to aggregate ESG factors into composite indices;
- Reliably assess investor preferences to enable ESG indices to be more customized and tuned to investors' values.
"We intend for each of these workstreams to be relevant for asset owners and managers, as well as for regulators working to ensure transparency, consistency, and impact of ESG investment," says Prof. Rigobon.
While the Aggregate Confusion Project is not accepting any new members at the moment, researchers plan to share their findings with the wider community in the future by hosting symposia and conferences.
To learn more about the Aggregate Confusion Project, please visit: https://mitsloan.mit.edu/sustainability/aggregateconfusion
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SOURCE MIT Sloan School of Management