Can investment choices produce positive outcomes for the economy, environment and global population? According to some governmental organisations and financial institutions, the answer lies in implementing environmental, social and governance (ESG) guidelines when choosing an investment portfolio.
ESG promises to positively influence investing and achieve goals that benefit humanity and the planet. Web scraping helps achieve these aims by collecting data and checking if company activities conform to ESG guidelines. While there are many challenges associated with ESG, recent data research shows that these investment trends have grown in previous years and are expected to increase in the future.
ESG is an investment approach that assesses investment outcomes based on social goals in three areas: environmental, social issues and corporate governance.
Environmental goals: ESG environmental goals primarily address climate change concerns, greenhouse gas emission reduction, water management and waste reduction. As a result, ESG-focused investments are screened for impacts on possible factors of climate change and other environmental issues. For example, investments in fossil fuel-dependent businesses are considered less attractive when compared with sustainable or ‘green’ sources of energy.
Social issues: ESG guidelines attempt to divert investment activity to improve social issues including human rights, consumer protection and animal welfare. Other considerations examined include employee work conditions, financial institution practices (such as predatory lending) and how business activity impacts local communities.
Another social subset of ESG policies addresses diversity, equity and inclusion (DEI). Policies and programmes that promote DEI encourage the participation and representation of individuals categorised under various ethnic, gender, religious and cultural groups, including sexual orientation. In addition, ESG guidelines assess a company’s activities with other businesses and its relationship with local communities, charitable contributions and health and safety policies.
Corporate governance: Corporate governance is primarily concerned with a business’s internal processes, financial transparency, board composition and executive compensation. Other factors include the relationships of management with employees and stakeholders, and internal regulations designed to promote ethical behaviour and prevent conflicts of interest.
ESG data trends
ESG investing is growing worldwide, and the trend is expected to increase. According to the Sustainable Investments Institute, shareholder support for social and environmental proposals rose from 21% in 2017 to 32% in 2021.
Other notable ESG investment trends include:
- $35.3trn in global assets under management across the US, Canada, Japan, Australasia and Europe in 2020
- 55% growth in professionally managed assets labelled as ESG between 2016 and 2020
- 50% of investment assets labelled ESG in Europe following the EU’s 2016 ESG global mandate
- Professionally managed ESG investments represent more than 60% of assets in Canada, 33% in the US and 24% in Japan.
While sustainable investment strategies have seen an increase in recent years, there has been a drop in ESG flows on some investment platforms. According to a recent report, year-on-year flows to ESG funds dropped 115% in January 2022. Despite the decline, some investors remain bullish, projecting that ESG assets may hit $53trn by 2025 – approximately one-third of all global assets under management.
ESG concerns and challenges
Responses to ESG guidelines are mixed, spanning from hopeful optimism to severe criticism. The most common concerns and challenges include:
Greenwashing: Greenwashing (also known as ‘green sheen’) is a deceptive marketing scheme that persuades investors to believe that an organisation’s goals, policies and products are environmentally friendly.
Non-Transparent ESG Score Methodologies: ESG aims to grade companies by assigning a score based on their conformity to ESG guidelines. A predominant concern with these scores is that quantifying facts such as carbon footprint or investment in biodiversity and ecosystems is challenging. Lack of data, the high number of sources and inconsistent calculation formulas result in differing ESG scores and ratings depending on the methodology used. In addition, the time periods related to the data may not be consistent across all sets and typically require normalising.
Lack of ESG data standards: Selecting ESG data can be a largely subjective process, which results in a lack of consistent data standards. Rather than conform to a regulatory authority, companies typically use multiple data sources to make their own implementation decisions, resulting in differing outcomes based on varying ESG scores.
How to obtain ESG data
Public ESG information can be found in government publications, corporate reports, investment news and on social media. Other sources include:
Third-party data sets: ESG data can be purchased from third-party agencies. Most services cover multiple sectors and country-specific data points. Some key areas of available data include:
- health and safety
- water management
- climate change energy management
- materials and waste removal
- air quality
- employee compensation
- shareholders’ rights
- diversity, equity and inclusion
- audit risk and oversight
- board independence, structure and tenure
Considerations for selecting ESG data sets: When selecting data sets from third-party agencies, investment firms can refer to emerging regulations when creating frameworks, conducting analysis and making portfolio decisions. Since data vendors have different ESG ratings, creating an evaluation framework enables investors to take critical differences into account when evaluating individual company scores.
Ethical web scraping: Web scraping uses scripts or ‘bots’ to extract data from public websites. These scripts crawl websites with a specific set of keywords and send requests for information that is collected and parsed into a format that analysts can read.
Web scraping can be used to collect publicly available ESG data from multiple sources, including company websites, social media networks, online directories and news websites. Companies opting to scrape their own data can do so via an in-house team of developers and analysts. Other businesses opt for ready-to-use tools that can be customised to extract public data from predefined target sources. Since the process of accessing websites can be complex, data centre and residential proxies are used to provide anonymity, distribute requests, avoid geo-restrictions and prevent server issues.
To summarise, obtaining data is critical to making investments that align with ESG guidelines. Ethical web scraping is a great way to achieve this as it allows organisations to be able to utilise ready-to-use tools, which can simplify the process. As a result, businesses are able to focus energy and resources on deriving insights vital to their investment portfolio.