Value of ESG Metrics in the Investment Process

Improving data availability is not merely enough to ensure superior decision-making. The value of data depends on its quality, comparability, and relevance. In the context of environmental, social, and governance (ESG) metrics, European regulations have strengthened data quality and comparability by enhancing transparency and standardization, but their relevance to capital allocation remains contested. However, investors striving for financial returns have begun to question whether ESG metrics can consistently drive risk-adjusted performance and competitive returns. This study traces the evolution of ESG investing and evaluates the explanatory power of Combined ESG Scores and Ratings, alongside their underlying metrics, for portfolio construction in asset management. Building on these findings, the ESG-F model provides a pragmatic pre-selection layer that turns ESG data into implementable selection criteria, enabling risk mitigation and opportunity capture.