Great expectations: What can ESG actually do? 

Climate Finance

Great expectations: What can ESG actually do? 

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ESG gadfly Matthew Moscardi of Free Float Media says ESG is just another data set. The trick is how to act after you have it.

“Are we setting too high a bar for ESG?”

That is a question I often think about after hearing it raised at GreenBiz’s GreenFin 22 conference in June.  The question was asked by Matthew Moscardi, co-founder and CEO of Free Float Media. He elaborated on his pointed query by asking, “aren’t the demands placed on ESG to deliver consistent, comparable and comprehensive data the same as those that are placed (or should be) on traditional investing? And aren’t those business-as-usual practices based on facts and figures also uncertain, self-reported and incomplete?” So, he was saying, isn’t the problem not with ESG itself but in the grand claims made for it? 

“Here’s my point,” Moscardi told me in a follow-up conversation. “To those who say ESG data quality is not good, I’d argue that all financial data is conditional. ESG is just another data set. The trick is to think after you have it.”

The ESG gadfly

Moscardi is a particularly informed ESG gadfly. He worked at MSCI ESG Research for 10 years, developing the ESG Ratings model used by the largest institutional investors in the world. He chaired the MSCI ESG Research Editorial Committee, sat on the MSCI Research Editorial Board, co-created the MSCI ESG Now podcast, and wrote more than 100 investor papers, industry reports and profiles during his time at the ratings and research firm. 

Prior to joining MSCI, Moscardi developed low-carbon investment programs and engaged directly with U.S. pension funds and asset managers, managing over $10 trillion in assets as a manager at Ceres, the Boston-based non-profit. He also founded a hedge fund with a sustainability and resource scarcity theme. So, he knows the values-driven investing system pretty thoroughly, from the inside.

“ESG is partially my fault,” he says, half-laughingly. “I got hired by RiskMetrics, who MSCI bought, and there was a battle about whether to make ESG about socially responsible investing, like the way it started at KLD back in the 80s and 90s, or to make it about financial risk like it was for Innovest. Finance won out. So if you’re wondering why ‘ESG’ isn’t about saving the world, it’s because that’s not what I helped build with ESG ratings.”

Here’s the thing: “ESG is not about being ‘right.’ It’s about being persuasive. Ratings should be a story, not a number.”

According to Moscardi, ESG has devolved into a marketing strategy. “ESG adopted the language of finance and used it to sell.  The problem with that is the acronym doesn’t solve anything – it starts being just a way to sell and totally divorced from what it is: data.” At MSCI, Moscardi argued for “killing” the acronym and just using ESG as additional data in investment decision-making.

“I would get sent in to meet with portfolio teams or research heads or the c-suite. They wanted to know how to build an ESG product – that was their goal. Wall Street is basically about sales, and ESG had the potential for repeat sales and fees. And here I am saying, ‘kill ESG.’ Let’s just say it wasn’t the best fit.”

Moscardi wasn’t buying into the rush to generate ESG products. “I’ve seen the models of all the raters – Sustainalytics, MSCI, S&P, Refinitiv – there’s a lot of fluff, some more than others. But most of the decisions about what matters is a black box.  Like, why is the weight on one issue 12% instead of 13%? Only a few people in a dark room really know most of the time.” 

So does Moscardi think ESG is helpful, in any way, at all? “That depends,” he says. 

Here’s the thing: “ESG is not about being ‘right.’ It’s about being persuasive. Ratings should be a story, not a number.”

As phrased on his company’s website, “The market is effectively a narrative. Free Float Media wants to change the narrative. We focus on all the protagonists, not just the market. We think about the people who invest, not just investors. We know the metrics, we know the trends and we know how the deepfake, meatless sausage gets made.”

To that point, Moscardi works with his Free Float Media co-founder and chief creative officer Damion Rallis to “make investing and business news and ideas more human and accessible” through ESG consulting, producing branded content and podcasts and speaking engagements. (Rallis also touts some serious insider investing bona fides, having worked at MSCI ESG Research for over a decade as a corporate governance expert, authored hundreds of company and thematic reports and co-created the ESG Now podcast.)

Thinking of ESG as a way to save the planet is wrong. The goal of finance is financial returns, and the goal of ESG in finance is also financial returns.”

The Free Float team’s main target is corporate boards. “We focus on measuring people, not assigning a number or ranking to data. And we decided to focus on boards, which tend to be rooted in maintaining the status quo, despite the mortality demographics of old white men.” 

That last quip is another typical feature of Free Float Media: its promise to deliver “ESG 2.0: Fact-Based Snark.” A series of satiric postings in their Business Pants “news” functions as “ESG’s only fact-based newsletter with a personality,” publishing acidly hilarious parodies of generic board announcements – a rarity in the ESG industry, which is not noted for its humor.

“We take an absurdist point of view,” says Moscardi, “although we are serious about what we do.”

Where does Moscardi look for positive inspiration and guidance these days? Ever the contrarian, he first suggests reading “the opinions of SEC commissioner Hester Peirce because she refers to precedent and she quotes Thurgood Marshall.” (Peirce, appointed by former president Trump, has pushed back on proposed rules for mandated ESG disclosure: “This proposal would displace the market’s efficient signaling mechanisms with value-laden regulatory nudges.”)

More predictably, Moscardi reads “everything Michael Lewis writes.” Ditto Richard Thaler. He also strongly recommends Narrative and Numbers: The Value of Stories in Business by Aswath Damodaran as a primer for using storytelling to make a persuasive case with the numbers. 

“The financial world is not the real world. Thinking of ESG as a way to save the planet is wrong. The goal of finance is financial returns, and the goal of ESG in finance is also financial returns. The reality of saving the planet is buying an electric car, installing solar panels, recycling and doing all those other things that actually make a difference.”

His bottom-line message for the best use of ESG: “Use the data to tell the story that moves you.”

To read more coverage of GreenFin22, click here.

Written by

John Howell

John Howell is a writer, editor, and broadcaster who oversees the Climate Finance Weekly newsletter and advises on communications and media strategy. He was co-founder, editorial director, and chief of thought leadership for 3BL Media, for which he managed all original editorial content, wrote, and edited newsletters, and created the Brands Taking Stands initiative. He has worked as an editor and contributor for Elle, Artforum, and High Times magazines, developed new media for Hearst Magazines, and created communications for Calvin Klein, Polo/Ralph Lauren, and The Body Shop. He lives and works in New Hampshire and Maine.