Asset managers need to get their grips on quant ESG analysis
Ignoring quant ESG is a costly mistake that asset managers can no longer afford
TLDR: Asset managers who ignore ESG are risking obsolescence. Quantitative ESG analysis is not just a “nice-to-have” or some kind of compliance tool — it is becoming essential for understanding true long-term value and for navigating market risks that are often overlooked. The numbers do not lie: ESG factors drive financial performance, and the firms that fail to integrate them will be left behind. In this article, we dive into why quant ESG is critical, the business edge it provides, and cover some practical steps to get your firm up to speed before it is too late.
Environmental, Social, and Governance (ESG) factors have moved from the sidelines to the core of leading asset management firms in the past few years. Even the recent ESG backlash has not changed these trends.
By 2026, ESG-related assets under management (AuM) are projected to reach $33.9 trillion, or 21.5% of total global AuM, according to a 2022 PwC report. Nevertheless, many boutique asset management firms continue to hesitate on ESG integration. It is understandable, given their often smaller size, that they would be scared of lawsuits they cannot afford (e.g. due to anti-greenwashing non-compliance and other threats). Despite these risks, ignoring the topic is a huge mistake for asset managers large and small.
For smaller firms, barriers like data accessibility, perceived complexity, and resource constraints are often cited as reasons for lagging adoption. These are valid concerns, but asset managers who ignore the power of quantitative ESG analysis are risking far more than compliance fines—they are jeopardizing their portfolios in a market that is rapidly reshaping itself around sustainability and transparency. This isn’t about “doing good”; it’s about securing an edge in a fiercely competitive industry where robust data drives superior returns.
This article will examine why embracing quantitative ESG analysis is crucial for asset managers who want to stay relevant. We will start by debunking some pervasive myths around ESG as a mere compliance tool or “do-gooder” gesture, then tackle misconceptions about ESG being solely of relevance in risk management. From there, we will explain why qualitative assessments are no longer enough and explore the advanced tools available for rigorous ESG analysis. Finally, we provide practical steps for firms that are ready to integrate ESG into their investment strategy.
By the end, one thing should be clear: There is no future for asset management without ESG, and those who refuse to adapt will inevitably be left behind.
ESG can no longer be separated from asset management
In recent years, the integration of Environmental, Social, and Governance (ESG) factors into asset management has faced significant backlash, particularly in the United States. Critics argue that ESG considerations detract from financial performance and impose ideological agendas on investors. This opposition has led to legislative efforts aimed at curbing ESG integration. For instance, in 2023, Republican lawmakers in 37 states introduced 165 pieces of legislation targeting ESG practices, reflecting a concerted effort to limit the influence of ESG in investment decisions.
Despite this resistance, the momentum behind ESG integration remains robust. A 2023 survey by Russell Investments revealed that 80% of asset managers in the EU (and a steady 20% in the US) incorporate ESG considerations into their investment processes. This indicates that investor interest in ESG factors continues to grow, undeterred by political opposition.
The recent election of an ESG-opposed president has further intensified the discourse. Historically, such political shifts have galvanized grassroots movements and activism, bringing ESG issues to the forefront. For example, during previous administrations with less emphasis on ESG, there was a notable increase in grassroots initiatives advocating for sustainable and responsible investment practices.
Moreover, empirical evidence supports the financial benefits of ESG integration. A 2021 study by NYU Stern's Center for Sustainable Business analyzed over 1,000 research papers and found that 58% demonstrated a positive relationship between ESG and financial performance, while only 8% showed a negative relationship.
The upcoming political opposition certainly presents challenges, but nevertheless the underlying drivers of ESG integration—investor demand, financial performance, and societal expectations—remain strong and might indeed rebound precisely because of a lack of action from high-ranking politicians. In the light of numerous positive correlations between ESG- and financial performance, asset managers who disregard ESG factors risk not only regulatory repercussions but also diminished competitiveness in an evolving market landscape.
ESG is more than a compliance exercise for do-gooders
While the ethical imperative of Environmental, Social, and Governance (ESG) considerations is commendable, asset managers must recognize that ESG integration transcends mere compliance or altruistic intentions. The primary objective remains delivering robust financial returns, and ESG factors can be instrumental in achieving this goal.
Historically, some firms have approached ESG as a box-ticking exercise to meet regulatory requirements and avoid potential fines or lawsuits. However, this superficial engagement overlooks the strategic advantages that a deeper integration of ESG factors can offer.
The evolving regulatory landscape further emphasizes the importance of substantive ESG integration. The European Union's Corporate Sustainability Reporting Directive (CSRD), which came into force on January 5, 2023, modernizes and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, are now required to report on sustainability.
This shift necessitates the collection and analysis of high-quality ESG data. This is a golden opportunity: Asset managers can use this data to make more informed investment decisions that not only align regulatory expectations, but also boost their portfolio performance.
ESG is more than risk mitigation
While ESG (Environmental, Social, and Governance) factors are often associated with risk mitigation, their role extends significantly beyond merely safeguarding against potential pitfalls. Integrating ESG considerations can actively enhance portfolio performance and uncover new investment opportunities.
A 2015 study by Harvard Business School found that companies with strong sustainability practices outperformed their counterparts in both stock market and accounting performance over the long term. This suggests that ESG integration is not just about avoiding risks but also about capitalizing on sustainable business practices that drive financial success.
Moreover, ESG factors can serve as indicators of a company's operational efficiency and management quality. For instance, a 2020 report by MSCI demonstrated that firms with high ESG ratings experienced lower costs of capital and higher valuations, indicating that the market rewards companies with robust ESG profiles.
In the context of asset management, incorporating ESG criteria can lead to the identification of companies poised for long-term growth. A 2018 analysis by Bank of America Merrill Lynch revealed that firms with better ESG scores exhibited higher three-year returns and were more likely to become high-quality stocks. (The source has been removed from the page of Merrill Lynch, but is still referred to by a 2019 piece in Harvard Business Review. Talk about backlash!)
Viewing ESG solely as a tool for risk mitigation sorely underestimates its potential. By using this opportunity, asset managers can not only protect their portfolios from downside risks but also enhance returns and identify companies with sustainable competitive advantages.
Beyond qualitative assessments
Many firms today, including major players like S&P Global, still rely heavily on qualitative assessments to evaluate Environmental, Social, and Governance (ESG) factors. While qualitative insights can be valuable, they miss a critical opportunity: the wealth of quantitative data that is increasingly available in ESG reporting.
This data—ranging from carbon emissions, waste production, and gender diversity to shareholder voting patterns and worker pay—can be systematically analyzed to create far more precise, data-driven insights.
For instance, carbon emissions data offers insight into a company’s regulatory and reputational risks, as well as potential cost savings or penalties tied to climate policies. Gender diversity stats can be a leading indicator of a company’s resilience and inclusivity. In fact, the percentage of women in management in male-dominated sectors is strongly (and positively) correlated to revenues and profits, as shown by our own research. (Our results will be published on this blog in early 2025.)
One might counter that widespread reporting frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) rely heavily on textual data. This is true, but techniques like Natural Language Processing (NLP) in fact allow quantitative analyses of textual data found in ESG disclosures.
This allows asset management firms to automate their ESG analysis, scaling it to cover a broader range of companies or data points with far less manual intervention by highly trained (and hard-to-find) analysts. In addition, this quantitative data can be directly linked to financial performance, making ESG metrics more compelling to investors.
Ultimately, the ability to use data-driven, quantitative approaches puts firms ahead of those relying on qualitative ESG assessments alone. Quantitative analysis does not just make ESG insights clearer—it aligns them directly with financial strategy, supporting investment decisions with hard numbers and minimizing the subjectivity that can undermine qualitative reports produced by individual analysts.
Advanced tools for ESG analytics are urgently needed
While the market is flooded with ESG reporting tools, most fall short where it counts: turning data into real, actionable insights. Many solutions focus on the basics—collecting and reporting data—leaving asset managers stranded with raw information but little means to derive the strategic intelligence they need. Simply put, we need better tools to process and analyze ESG data, not just endless dashboards filled with numbers that go unused.
This is where Wangari stands out as a top contender. Our platform is built with robust data collection and cleaning capabilities that ensure the accuracy and reliability of every data point. To evaluate the data and make it usable for analysts with or without knowledge in ESG, we deploy advanced statistical techniques, such as time-series correlations and Bayesian statistics, to reveal causality and deeper connections within ESG factors, not just surface-level patterns.
Machine learning algorithms further push our analytics into the predictive realm, allowing firms to anticipate risks and spot opportunities before competitors even see them on the horizon. (A demo version of our platform will go live in early 2025. If you’re interested in getting priority access ahead of time, drop us a message at contact@wangari.global.)
Unlike many players in the market, who are fixated on environmental metrics alone, Wangari takes a truly holistic view of ESG. We recognize that social and governance factors often have just as much—if not more—financial impact as environmental issues.
Social factors, like labor practices or community engagement, are not “too hard to quantify” as some analysts posit; with the right tools, they’re just as measurable as carbon emissions. And governance factors such as board diversity and shareholder rights are central to understanding corporate stability and integrity, which matter enormously in the real world of finance.
At Wangari, we don’t just analyze ESG data; we make it work for asset managers. With our comprehensive, data-driven approach, no aspect of ESG is left unexamined, empowering firms to make decisions grounded in a full, balanced view of the issues that drive financial performance today.
How to get started
A platform like Wangari’s enables asset managers to leverage ESG data without having to get their hands dirty. Nevertheless, some basic knowledge can be useful in order to facilitate communication with clients and stakeholders; especially because this is still early days in ESG. For firms just starting out in their ESG journey, here are some essential steps worth considering:
Establish a Basic Data Collection Process
Start gathering ESG data from reliable sources. Many companies now include ESG metrics in their annual reports, and databases like MSCI, Bloomberg, and Refinitiv offer access to structured ESG data. Going beyond that, consider sending ESG surveys to your portfolio companies if you have the capabilities.Analyze Trends with Simple Metrics
Once you have initial data, use basic statistical techniques to uncover trends. Simple calculations, like year-over-year changes in emissions or diversity improvements, can give you a feel on how companies are progressing (or regressing) on key ESG factors.Build Internal Familiarity with ESG Frameworks
Familiarize yourself with prominent ESG reporting frameworks such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD). Understanding these frameworks will help your team navigate ESG reports effectively and standardize your assessment criteria. (Platforms like Wangari will automate this, however, so you do not need to look at such reports anymore.)Consider an Analytics Platform When Ready to Scale
Once the basics are in place, you’ll likely reach a point where the scale of data and analysis exceeds manual processes. At this stage, consider adopting an advanced ESG analytics platform, like Wangari, to automate data collection, apply complex statistical methods, and gain deeper insights. Our tools can take your analysis from foundational metrics to predictive insights that inform strategic decisions.
Even if you are just starting out and have limited capacity for such extensive research, it pays to do some initial exploration. With this knowledge, you will be better able to justify ESG-related investments to your clients and stakeholders, and to justify purchase decisions like the Wangari platform.
The bottom line: There is no future to asset management without ESG
The message is clear: asset managers who fail to embrace ESG are on borrowed time. This isn’t a “nice-to-have” anymore; it’s a fundamental shift in how investments are evaluated, managed, and held accountable. As a consequence, asset managers who embrace this change early are well positioned to earn all the rewards, to the detriment of late movers.
Regulatory pressures are only mounting, and investors are demanding real, measurable progress—not greenwashing or hollow commitments. ESG is not just about appeasing regulators or ticking boxes; it’s about understanding the real risks and opportunities in a world undergoing rapid environmental and social change.
Those who adapt and adopt robust, data-driven ESG analytics are setting themselves up for long-term success. They are aligning with market realities and client expectations, driving sustainable returns that reflect a more resilient, future-proof portfolio. Those who ignore this shift risk becoming relics in a world that values transparency, accountability, and tangible impacts. If you want to make superior returns and mitigate risk, you should make quantitative ESG analysis central to your investment strategy.
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