ABSTRACT
In recent years, there has been a marked rise in the consideration of environmental, social, and governance (ESG) factors in investment decision-making. However, ESG analysis is still not part of mainstream investment analysis. We assert that heavy investment intermediation (e.g., from consultants, ratings agencies, and ESG fund managers) is a serious impairment to the continued expansion of ESG analysis into investment practice—that is, investors have come to over-rely on third parties to conduct ESG analysis for them, which perpetuates a rift between the conventional financial analyses, which investors perform themselves, and the ESG analysis which they mostly outsource. While it would benefit many investors to undertake more ESG analysis directly, there are two main barriers to their doing so: the difficulty in assessing relevant ESG datasets and the challenge of integrating ESG data into their standard processes for analyzing risk and return. We propose a concept, Resilience, which addresses both of these barriers by serving as an analytical filter for ESG datasets. We discuss how Resilience analysis can be used to study situational materiality of ESG factors in the context of shocks. We suggest suitable technologies that could aid investors in conducting Resilience analyses.
