BlackRock Says Active Managers Should Seize ESG to Beat Market

BlackRock Inc. said active investors have an opportunity to beat the market by digging deeper into information about the sustainability of companies.

While countless data points exist on environmental, social and governance issues, only a fraction materially affect financial performance, the world’s largest asset manager said in a report published Tuesday.

Investors also face challenges because companies self-report some ESG information and third-party rating firms use different methods for scoring sustainability, BlackRock said.

BlackRock, with $9.46 trillion in client assets, said active money managers are instead turning to alternative sources of data -- such as patents for clean-energy technology or a company’s buildings and their energy use -- to get insights into potential investments.

“We believe that incorporating sustainable data into the investment decision-making process can help investors find an edge in determining which securities might be poised to outperform,” said the authors, including Rich Kushel, head of the portfolio management group, and Eric Van Nostrand, head of research for sustainable investments and multi-asset strategies. “Relying only on self-reported corporate ESG data points is limiting in our view.”