Sustainable investing has entered the mainstream in the investment industry with more than $30 trillion of assets worldwide relying on Environmental, Social, and Governance (ESG) data, a figure that has grown 34% since 2016. Measurement, however, remains a significant challenge. ESG ratings that gauge a firm's socially responsible behavior diverge substantially from rating agency to rating agency. Significant, real-world consequences can flow from this discrepancy. Corporate stock and bond prices may not correctly reflect ESG performance as investors struggle to accurately identify outperformers and laggards. Divergence can also dampen companies' ambition to improve their ESG performance due to the mixed signals they receive from rating agencies.
The launch of the Aggregate Confusion Project, spearheaded by the MIT Sloan Sustainability Initiative, aims to address this. Joining the project as the founding member is the Massachusetts Pension Reserves Investment Management (Mass PRIM) Board. Mass PRIM manages the $75 billion Pension Reserves Investment Trust PRIT Fund, a pooled investment fund that invests the pension assets of the Massachusetts Teachers', the State Employees' Retirement Systems, as well as many other public retirement systems in Massachusetts that elect to invest in the PRIT Fund. The collaboration aims to build on research by a team of scholars at MIT Sloan School of Management to improve the quality of ESG measurement.
