Berenberg ESG-Rating Study: The small and mid cap conundrum

The rising importance of Environmental, Social and Governance (ESG) considerations has had a significant impact on the asset management industry. Along with this trend, we have observed the proliferation of ESG rating providers. Increasingly they offer third-party solutions to investment managers that are under intensifying pressure to demonstrate how they integrate ESG considerations into their investment processes. We hope to demonstrate that the standardised frameworks of rating providers – while significantly improved – continue to struggle to account for the complexities and nuances of a real world business. With regards to smaller companies in particular, overreliance on such frameworks can easily result in significant risks being overlooked or attractive opportunities being missed. Ultimately, ESG integration must not be outsourced. Instead it should be an inherent part of fund managers’ day-to-day work.