Why don’t asset managers accelerate ESG investing? A sentiment analysis based on 13,000 messages from finance professionals

Rodrigo Zeidan Received

NYU Shanghai, China and Fundaç˜ao Dom, Cabral, Brazil
19 November 2021 Revised: 23 February 2022 Accepted: 9 March 2022


Mitigating climate change effects requires investors (and their proxies, fund managers) to shift their business-as-usual strategies. This article analyzes Environmental, Social, and Governance (ESG) investing behavior through more than 13,000 messages exchanged by finance professionals from 2017 to 2020. There is a consensus that low and high ESG firms’ discrimination is a necessary but not sufficient condition for ESG investing. Moreover, it is one thing for fund managers to claim that they are integrating ESG factors in their portfolios and another to do it properly. The restriction of the strategy space, internal and external transaction costs, and data quality are still viewed as overwhelming obstacles for seamlessly integrating ESG into financial portfolios. Sentiment analysis indicates that asset managers hold a negative view of ESG investing, surprising as ethical investing is becoming increasingly common.

Unlocking the potential positive externalities from ESG investing may require regulators and investors’ actions to improve the quality of information disclosure and pressure fund managers into incorporating nonfinancial criteria in their investment models.


Few casual relations are more conducive to confirmation bias than Environmental, Social, and Governance (ESG) factors and financial performance. Given how meaningful this relationship may be in mitigating
climate change, authors strive to show that firms that reduce their negative impacts on environmental and social outcomes are more resilient and generate better economic performance in the long run (e.g., Aouadi & Marsat, 2018; Auer, 2016; Duque-Grisales & Aguilera-Caracuel, 2019; Lokuwaduge & Heenetigala, 2017; Verheyden et al., 2016; Xiao et al., 2013) and that ESG events might impact stock prices and financial markets (e.g., Siew et al., 2016; Capelle-Blancard & Petit, 2019; Tan, 2021; Xie et al., 2019). Mitigating climate change effects requires investors (and their proxies, fund managers) to change their behavior. ESG investing is a critical avenue of societal pressure for supply chains to reduce carbon emissions.

However, agency costs may reduce the effectiveness of ESG investing, given that asset managers are rewarded for claiming that they consider sustainability-related outcomes in their portfolios but are rarely penalized if they fail to come true with promises of ethical investing. In this article, the goals are twofold. First, to review the scientific literature to identify the barriers to ESG investing. Second, to complement that analysis with primary evidence on the actual behavior of fund managers, which is relatively rare in the literature (exceptions include Liao et al., 2011, and Chou et al., 2016). Disentangling discourse from practice is relevant for scientific, political, and managerial purposes.

Pressure from investors is mounting, but issues related to the lack of standardization and insufficient information content remain critical for ESG investing to reach a critical mass. Here, the main contribution is to open the black box of asset managers’ modeling approach to consider how ESG information is used. Methodologically, this article follows the existence of inductive theory building (Weller et al., 2018; Zeidan et al., 2020) for extracting the most salient insights about ESG investing from discussions among fund managers. This initial information set comprises more than 10,000 messages exchanged in a WhatsApp group composed solely of finance professionals. The data gathering process was close to ideal: conversations about ESG emerged organically, and participants did not self-censor as the request for data was made after the group had existed for over 3 years. Information has been validated internally and externally on interviews with fund managers of other countries. There is one departure from the literature. The textual analysis explicitly illustrates some trade-offs in ESG factors in financial markets and, more importantly, provides the requirements for successful identification strategies of the relationship between ESG and financial development. Imperatively, the main barrier for identification is the informational content of sustainability reports, a variable that is usually ignored or unobservable in empirical settings. The present evidence complements Stroehle et al. (2019), who argue that “it takes two to tango,” underlining that interactions in the investment chain are critical to the success of ESG integration.

The main contributions are more deeply exploring the relationship between asset owners, asset managers, and companies (complementing Van Duuren et al., 2016, and Harjoto & Laksmana, 2018, among others); and incorporating information from professionals from a large emerging market. One crucial piece of evidence is that the relationship between ESG screening and portfolio performance is not a fundamental criterion for ESG dissemination. Sentiment analysis indicates that asset managers mostly hold a negative view of ESG investing. That is somewhat surprising, as incorporating environmental, social, and governance factors increases the strategy space and could potentially lead to improved welfare of managers who could do good while searching for excess returns.

There is a consensus that ESG data have severe limitations, that ESG indicators are not risk factors, and that it is easy to claim to do ESG investing while not engaging with the subject properly. Moreover, there is skepticism that ESG investing generates meaningful improvements in environmental outcomes. For instance, companies may outsource production that is particularly pollution-heavy, and there is a dearth of ESG-related funds that robustly track nonfinancial performance. Yet some group members are investigating ESG integration, even if they claim they are not planning to change their current business practices.

Partly, there is an indication that ESG investing lacks widespread use because standardization does not seem to be bringing high-quality, actionable information. It is paramount that institutions and agents work toward preventing the ESG trap, defined here as the low information content (as examined by Rezaee & Tuo, 2019, Busco et al., 2020, and others) of sustainability reports by public companies. Finally, there is a consensus that the main driver for propagating ESG investing is investors’ revealed preferences. If investors mandate that group members integrate ESG data into their investment strategies, asset managers have indicated that they would be able to do so.

The main lesson of the present study is that the dissemination of ESG investing practices is not guaranteed and that society should change incentives to guarantee that it will happen. For asset managers,
it is easy to claim that they are doing ESG investing; it is much harder to do it properly. There is still much work to be done to disseminate ESG investing.


Sustainable strategies increase shareholder value while simultaneously improving a firm’s performance in environmental, social, and governance (ESG) dimensions (Eccles & Serafeim, 2013). Investors cannot
directly observe whether companies enact sustainable strategies (or to what extent strategies and implementation are decoupled, as in Hengst et al., 2020). Still, they can track ESG indicators insofar as
companies disclose them (for a primer on ESG ratings and indexes, see Pagano et al., 2018). The diffusion of ESG standards by firm managers is predicted using the following relationships:

• ESG as an organizational commitment to the workforce.
• ESG as a response to shareholder pressure.
• ESG as a response to regulatory pressure
• ESG to avoid reputational risk.

The corporate response, from company executives or fund managers, depends on sustainability governance (Husted & de Sousa- Filho, 2017), the material benefits of adjusting to and scoring well on ESG ratings, regulatory pressure (Elijido-Ten & Clarkson, 2017), and alignment with the corporate strategy (Clementino & Perkins, 2020).

2.1 | ESG, firm performance, and how fund managers behave

The focus of the present study is on the behavior of fund managers about ESG scores, which are used as proxies for companies’ environmental performance (for a study on greenwashing, firms’ wrongdoing
beyond ESG indicators, and how firms may intentionally divert stakeholders’ attention from the firm’s low overall sustainability performance, see Maniora, 2018). Should we expect that ESG investing is about to reach a critical mass? For fund managers, ESG investing is like getting to heaven. Everyone wants to get there but not a moment too soon. Unfortunately, organizational inertia is a strong force, and ESG indicators are not as developed as other accounting indicators.

ESG investing assumes that societies gain if fund managers allocate capital to more sustainable companies. ESG indicators allow the classification of companies in terms of their environmental and social
impacts. If companies with better ESG scores also achieve better financial performance, fund managers would perceive ESG indicators as a risk factor; they could expect higher risk-adjusted returns by
selecting companies with better indicators. As capital flows to companies with better ESG scores, low ESG companies would have no choice but to become more sustainable. Once competition for high
ESG scores reaches a critical mass, incentives for firm executives, fund managers, and the rest of society would be aligned; going green would become the norm; businesses would become more sustainable (or less

For society, the diffusion of ESG investing could potentially reduce the impact of economic growth on society and contribute to the global society’s goals from the Sustainable Development Goals and the Paris Climate Agreement. For instance, Zeidan (2020) describes the workings of Wright Capital. For their clients, at least 1% of their portfolio must be allocated through a dedicated fund related to the Sustainable Development Goals (SDGs). The underlying firms’ ESG scores measure the nonfinancial performances of the portfolios. In an ideal world, ESG scores would be intrinsically connected to the SDGs (and, by extension, the Paris Climate Agreement). After all, improving a corporations’ ESG score should indicate a reduced or beneficial impact on society (for a comprehensive literature review, see Mio et al., 2020).

For these dynamics to play out, three conditions need to be met: high ESG companies would need to be more profitable than (or at least as promising as) low ESG firms, disclosure patterns should be predictable, and ESG data should allow market agents to build high ESG portfolios. Finally, there are three dimensions regarding fund managers’ use of ESG indicators: the characteristics of ESG data and disclosure, the empirical relationships between ESG indicators and firm performance, and theories about fund managers’ behavior.

According to the literature, fund managers can build efficient portfolios while considering ESG indicators, although some studies negatively associate ESG scores and financial performance. Brulhart et al. (2019) and Garcia et al. (2017), using samples of multilatinas and firms from BRICS countries, respectively, find that the relationship between ESG scores and financial performance is significantly statistically negative. Leite and Cortez (2015) find that socially responsible funds underperform conventional funds during noncrisis periods, with underperformance driven by funds that use negative screens.

Nevertheless, up to 90% of studies detect a nonnegative association between ESG indicators and financial performance (Friede et al., 2015). For instance, Auer (2016) assesses if socially responsible investment policies add or destroy European stock portfolio value. Negative screens excluding unrated stocks from a representative European stock universe allow investors to significantly outperform a passive investment in a diversified European stock benchmark portfolio. A similar result, in which ESG investing does not reduce portfolio performance, is found in Auer and Schuhmacher (2016). Tang et al. (2018), Duque-Grisales and Aguilera-Caracuel (2019), and Gangi et al. (2020) reveal that environmental proactivity positively impacts profitability, while Cunha et al. (2020) argue that investors have promising opportunities to obtain superior risk-adjusted returns in certain regions by incorporating sustainable investment practices.

Furthermore, what drives the association between ESG indicators and financial performance is not firmly established. It may be that more profitable companies can afford to disclose more information on ESG indicators (for instance, Li et al., 2020, and Neto et al., 2020, detect a positive association between the ESG disclosure level and firm value) or that firms in specific sectors (such as sensitive industries, as in Garcia et al., 2017) drive this association. Or that, according to Patel et al. (2020), investors expect lower short-term growth potential of industry firms with experimentation in leveraging ESG to increase sales. Xie et al. (2019) find that corporate transparency regarding ESG information positively correlates with corporate efficiency at the moderate disclosure level (other studies about the topic include Tang & Demeritt, 2018, Bravo & Reguera-Alvarado, 2019, Alsaifi et al., 2020, Flores-Hernández et al., 2020, Jyoti & Khanna, 2021, Li et al., 2021, and Raimo, Caragnano, et al., 2021).

Finally, it is possible that the quality of the disclosure, and not the content, is associated with firm performance (Rezaee & Tuo, 2019). For fund managers, the impact of ESG events on stock performance is more
relevant than the association between ESG and corporate performance. However, ESG news and controversies and their effects on firm value are mixed (Tampakoudis & Anagnostopoulou, 2020). Aouadi and
Marsat (2018) do not detect that ESG controversies matter for firm value, Cordazzo et al. (2020) find no association given a legislative decree in Italy, and Takahashi and Yamada (2021) find that the ESG
scores do not abnormally change stock prices during the Covid-19; however, Capelle-Blancard and Petit (2019) find that, on average, firms facing adverse events experience a drop in their market value of 0.1%
whereas companies gain nothing from positive announcements.

Moreover, Cui and Docherty (2020) report the possibility of the market overreacting to news about ESG controversies, especially for smaller firms and stocks that more transient investors hold before the
announcement. In this case, contrarian investors may profit from the unpopular strategy of buying stocks after bad ESG news is released. Finally, ESG portfolios might be so highly correlated to regular portfolios
that ESG screening would not be helpful; in Verheyden et al. (2016), the correlation between market and ESG portfolios varies from 99.83% to 99.96%.

2.2 | Quality and breadth of ESG data

Even if the evidence that ESG investing does not reduce portfolio performance was conclusive, should we expect that, as in Xiao et al. (2013), the absence of a significant relationship between sustainability
and returns implies that asset managers are free to implement sustainability mandates? Unfortunately, the answer is not quite. Portfolio optimization requires consistent data for backtesting (for more information, see Harvey & Liu, 2015). Still, Baldini et al. (2018) and Qureshi et al. (2020) show that country-level characteristics such as the political system (legal framework and corruption), labor system (labor protection and unemployment rate), and cultural system (social cohesion and equal opportunities) significantly affect firms’ ESG disclosure practices, while Yu and Van Luu (2021) find that firm-level variables explain most variation in ESG disclosure.

ESG indicators do not capture the overall environmental performance (e.g., Landrum & Ohsowski, 2018; Weber, 2014; Widyawati, 2020), even if investors value it (e.g., Mervelskemper & Streit, 2017; Reverte, 2021). Elijido-Ten and Clarkson (2017) observe that superior performers provide a more detailed description of climate change strategies beyond managing climate change risks. In addition, ESG dissemination appears to be skewed toward larger, more profitable companies. Drempetic et al. (2019) show a relationship between firm size, a company’s available resources for providing ESG data, and the availability of a company’s ESG data. Lemma et al. (2021) demonstrate that firms with more commitment to climate action issue more and longer maturity debt. Siew et al. (2016) suggest a statistically significant negative relationship between ESG disclosures and the bid-ask spread. In addition, disclosure scores are generally not distribution-free, have high kurtosis and skewness, and are sensitive to outliers (Baldini et al., 2018).

Difficulties integrating ESG into the investment process have long been recognized (Briand et al., 2011). Kotsantonis and Serafeim (2019) encapsulate these barriers in four categories: data inconsistency, benchmarking, ESG data imputation, and issues among ESG data providers. Regarding the first dimension, the authors state plainly that “ESG data inconsistency is worse than you think it is.” However, there
cannot be ESG investing without backward-compatible ESG data.

Recent initiatives, such as the Sustainable Industry Classification System (SICS) of the Sustainability Accounting Standards Board (SASB), have sought to address this issue; however, even if companies are beginning to adopt ESG, the quality of the reports varies significantly (Busco et al., 2020). ESG-related investments may increase, reduce, or maintain profits. If managers’ preferences are lexicographic,
they are unwilling to reduce profits by any amount to improve environmental and social outcomes related to firms’ operations.

Opposite forces drive the dynamics of sustainability standards. Given that no code is universally accepted, new standards emerge regularly, but reporting costs and the pressure of shareholders induce
the consolidation of existing guidelines. Authors such as Eccles and Krzus (2018) and Hassan et al. (2021) have argued that companies should report financial risks from climate change. The number of ESGrelated
guidelines and regulations increased from 700 in 2009 to more than 1700 in 2019 (The Economist, 2020). Unfortunately, it seems that society is still years, if not decades, away from standardized (and value-creating) ESG disclosure.

Moreover, there are no comprehensive alternatives.Maniora (2017) compares integrated reporting, created by the International Integrated Reporting Council, with ESG indicators and finds that companies do not
benefit from a switch from standalone ESG to integrated reporting, contradicting its notion as a superior reporting mechanism (for more studies about integrated reporting, see Girella et al., 2019; Raimo, Vitolla, et al., 2021). However, corporations that voluntarily disclose more SASB-identified sustainability information exhibit greater price informativeness (Grewal et al., 2020).

It is also important to note that ESG data are open to misrepresentation. Investors may suffer “hidden value” injuries when corporations materially misrepresent sustainability information (Arom, 2021). Still, even given its limitations, there is no technical limit to incorporating ESG data into portfolio-building (e.g., Capelli et al., 2021; Folqué et al., 2021). Becker (2019) finds that ESG is integrable into robotic advising. Limitations are mostly related to the unavailability of ESG ETFs and inconsistencies in ESG scores.

2.3 | The praxis of ESG investing

Firm executives’ actions are not immutable. Fund managers and shareholders might pressure managers into changing investment and operating decisions (see, for instance, the agency perspective in Lüdeke-
Freund, 2020). Pointedly, shareholders may also pressure fund managers to transform their businesses.

Other stakeholders amplify connections between fund managers and ESG factors. In 2008, less than one third of German banks published CSR reports; by 2013, almost every bank did. More than a decade since the industry started using ESG reports, there is no universal method of reporting nonfinancial outcomes, and the informational content of ESG reports varies greatly (Busco et al., 2020). ESG diffusion provides one substantial obstacle to empirical studies: temporal validity. If the content of ESG reports changes significantly over time, studies that find a weak relationship between ESG factors and financial performance may not enlighten future research.

There is a long tradition of academic articles that aim to turn sustainable investing into practice (e.g., Eccles et al., 2017; Himick & Audousset-Coulier, 2016). Nevertheless, most descriptions of ESG investing still present black-box methods for risk assessment and portfolio selection. For instance, BlackRock has established that its active funds are expected to integrate ESG fully. Investment teams must provide evidence of how ESG considerations inform investment decisions in each portfolio, which is then reviewed by the risk and quantitative analysis team (BlackRock, 2020). Furthermore, the company states that it is integrating ESG into all active portfolios in public and private markets to enhance risk-adjusted returns. Such an approach, while commendable, does not describe the operational details on how funds are supposed to achieve these goals. Therefore, the possibility of greenwashing remains (Testa et al., 2018). For instance, Himick and Audousset-Coulier (2016) argue that opportunities for transformation do exist, but these are more (or less) possible depending on how the asset management structure is designed. Moreover, heterogeneity in standards led to more significant ambiguity about who belongs to a category, and fund managers adopt distinct measures-based, values based and expertise-based approaches to resolve this ambiguity (Nath, 2019).

One of the cornerstones of portfolio management is backtesting. Fund managers adopt new financial strategies through routine tests with historical data (Harvey & Liu, 2015). Nevertheless, there are precious
few studies describing the technical aspects of ESG integration or exploring financial modeling issues (exceptions are Verheyden et al., 2016, and Becker, 2019). As shown in the next section, operational
details matter and can be one of the most considerable remaining obstacles for the diffusion of ESG investing.


The goal of the present study is to improve our understanding of how investors and fund managers, as complex individuals (Diouf & Hebb, 2016), respond to stakeholder pressure for more responsible investments and move toward more ethical investing.

Information is first collected via textual analysis of discussions from a WhatsApp group composed solely of finance professionals. During the analyzed period, May 2017 to December 2020, 13,125 messages were exchanged by the 81 members of the group. Most members are Brazilian. As of August 2021, eleven members are in the United States, four in the United Kingdom, two in Portugal, one in Singapore, one in China, and the rest in Brazil. The most common occupation is that of a senior fund manager. Other than some academics (approximately 10% of the total members), all are senior industry professionals. A few members work for pension funds and boutique firms, but most work as managers for medium-sized and large banks. Permission to use older and future messages was asked and granted in August 2020. Eight members were invited to the group in the analyzed period, and nine left. Because not all the members who left the group could be reached, all 49 messages associated with their conversations were discarded. Of the remaining messages,
approximately 8% directly address ESG investing and form the initial information set for the textual analysis.

The present work follows many possible framing lenses for the emergence of the collective meaning (Purdy et al., 2019) regarding ESG investing. However, it should be noted that it still is a study in which the development of meaningful narratives depends on the encapsulation of special reports (following Gabriel, 2019) from financial agents. The final examination has been internally and externally validated. External validation comes from six interviews with asset managers not in the group from China (two), Angola, Argentina, and Portugal, conducted remotely in late 2021 and early 2022. The asset managers were selected through the author’s network. In these interviews, the beliefs and practices described in the following subsections in this chapter were presented to fund managers in open-ended interviews.

The goal was not to investigate if the assertions were true or false but if they were compatible with the behavior of fund managers in other countries. Overall, interviewees confirmed that the behavior and opinions expressed by their colleagues were compatible with that of many other fund managers in the industry, even if they disagreed with some of the arguments.

Still, there are caveats about the generalization of the findings. The sample should represent finance professionals in Brazil, even though it is not a random sample of fund managers. The group was not formed with any indication about its use in academic research. It has been created for the same reasons other private groups are created: exchanging information between people with shared interests.
Members are not filtered by their beliefs regarding ESG or nonfinancial performance; the group grows organically from the member’s networks. Regardless, the members’ opinions are those of agents with the incentives to behave according to the norms of the industry. Messages are primarily in Portuguese. The group has been surprisingly focused on financial matters. For instance, members have barely discussed
the last contentious Brazilian presidential election, other than to debate specific ramifications to financial markets (moderators have never warned or expelled a member, but they reminded members that
politics was off-limits). The main exception has been the Covid-19 pandemic: the group has debated issues such as the coronavirus’s rate of reproduction and mortality rate and the policy responses by local
and global authorities.

Possible shortcomings of the analysis include observing expressed beliefs but not actual investment choices and likely groupthink that discourages dissenting views. Given the diverse range of opinions
expressed in the messages, it is unlikely that the group experienced self-censoring and conflict avoidance. Nevertheless, the messages have been very civil in tone, and disagreements have not escalated to
fierce debates, common on social media platforms. Furthermore, the textual analysis in this study is not a sophisticated procedure because members directly tackle questions such as the following: Do you
incorporate ESG into your fund’s investment strategy? If not, why is that? Are ESG indicators risk factors? The answers provide support (or not) to previous empirical studies, hopefully broadening our understanding
of the dynamics of ESG adoption through analysis at the intersection of multiple fields (Rajagopalan, 2020). Nevertheless, it should be noted that when, in the present study, arguments are raised regarding the likely consensus of group members, there is the possibility that members who do not voice their opinion hold opposing views.

3.1 | Sentiment analysis

Given that the article’s goal is to present evidence on how asset managers view ESG investing and incorporate these factors into the portfolios that they administer, the empirical strategy is based on sentiment analysis of the exchanged messages in the group. Methodologically, the present study follows Hemmatian and Sohrabi (2019), using the LIWC2015 software (with the dictionary translated for Brazilian Portuguese) for word count and sentiment analysis, with technical terms based on Loughran and McDonald (2011), and interpretation on Tausczik and Pennebaker (2010).

Data are prepared by manually separating all the threads that discuss ESG investing or portfolio building based on nonfinancial factors. That is done to limit findings to those directly related to ESG investing. After discarding messages from participants who could not be reached regarding their communication in the group, 1060 messages were left. Below are some of the main results of a straightforward use of the software (Table 1). Because messages are already in .txt form and are not that numerous, researcher degrees of freedom are constrained; issues that may negatively impact the results, such as difficulties with digitalization, labeling, cleaning, segmentation, and formatting, are not expected. Dictionaries are translated to Portuguese to match messages, but results are presented in English. Some examples of words and expressions that denote negative emotions include (translated from Portuguese): strange, absurd, slight, lack of identification, inconclusive, problem, issue, not robust, trolling, and zero. I added slang and fast communication expressions, such as trolling, to the LIWC dictionary because they are used systematically in group communication in Brazil.

For cognitive processes, expressions related to causation and interrogation, such as “effect, correlation, consider, maybe,” are used (which are also part of the broader analytic category). Extending the primary outputs from the LIWC software for dimensions such as richness (Tausczik & Pennebaker, 2010) does not change the results, so the choice is to omit them. A similar option is made to discard dimensions such as authority and clout that are not pertinent to the present study.

As we can see from the results, there is a significant skew toward negative tones. Negative and emotional tones (for which a number above 50 indicates a more positive than negative tone) are much lower than the average in other studies about social media in general. Nevertheless, there are no studies to compare present results with similar samples of financial professionals. It may be that such professionals are much more skeptical than the average social media user.

3.2 | Beliefs and practices

No member of the group explicitly includes ESG factors in their portfolio strategies. One fund manager stated in 2019 that its fund included variables related to ESG separately into their models. Still, they are a few
out of hundreds of variables that their complex models considered. The lack of use of ESG is an interesting feature as it goes against previous evidence of fund management behavior. For instance, Van Duuren
et al. (2016) find that ESG is used to red-flag and manage risk. Oliveira et al. (2020) show that sustainability indices serve as valuable hedging tools to asset managers in particular contexts. Eccles and Stroehle (2018) indicate that demand and supply for information about companies’ sustainability performance continue to grow.

Nevertheless, in Zeidan (2020), a fund manager reported difficulties in finding funds with robust sustainability-related metrics, even if demand for green bonds (Sangiorgi & Schopohl, 2021) and socially responsible funds (Muñoz, 2021) is growing. That particular fund manages its clients’ wealth by buying shares in other funds, including those with sustainability-related criteria. The manager finds it hard to funnel clients’ wealth to additional funds that track environmental performance robustly. Participants also share practical concerns on ethical investing in the group studied in the present article.

In that sense, the present findings are the opposite of Van Duuren et al. (2016), who argue that ESG investing is like fundamental investing. The members who are asset managers practice fundamental investing but do not feel that ESG investing is in any way close to it. Of course, the present evidence does not invalidate previous works. Van Duuren et al. (2016) reveal a substantial difference in US and European asset managers’ views of ESG. Brazilian professionals may hold more distinct perspectives even if they work in the United States and Europe. Should the absence of a significant relationship between sustainability and returns imply that fund managers are free to implement sustainability mandates (as in Xiao et al., 2013)?

The group has overwhelming support for the idea that the orthogonality between environmental outcomes and financial performance is a necessary but not sufficient condition for ESG investing. Mostly, the
restriction of the strategy space and issues such as data quality are still viewed as overwhelming obstacles. Practical difficulties in backtesting models with accurate data and the learning curve from ESG data complicate the matter. Moreover, members routinely observe significant internal transaction costs, such as manipulating data and developing models, and external, from acquiring data.

Resistance to ESG investing goes beyond self-imposed objectives by the finance community (Drempetic et al., 2019). Some managers have taken tentative steps toward ESG investing but claim to have found a strong correlation between disclosure quality and firm size (e.g., Li et al., 2020; Verheyden et al., 2016). Yet most fund managers have not related ESG scores to portfolio performance. As in Grewal et al. (2020), asset managers may be slow to use that information because they are not investing in ESG-related portfolios.

There is a strong consensus, rightly or not, that ESG dissemination is skewed toward larger, more profitable companies, as in Drempetic et al. (2019). There is also skepticism that ESG indicators reflect the actual social and environmental impacts of financial and nonfinancial companies. “ESG is nothing more than marketing” is the view of a member who lives in the United States. One shared view is that asset managers
may claim to be doing ESG investing while simply picking large companies with better disclosure practices. “I could easily build an expost ESG report to justify my asset allocation that would reveal that mine
was one of the greenest portfolios around,” wrote another. Another member wrote that: “There are dozens of ESG data providers; it would be easy to cherry-pick factors that give me the ESG scores I want.” Nevertheless, a few members have expressed views consistent with Xiao et al. (2013), but they have conceded that their institutions have not moved toward the broad implementation of sustainability mandates.
Some of the arguments described above may be ex-post justifications for maintaining the status quo. One limitation of the textual analysis is that it cannot answer how organizational inertia (Zeidan et al., 2020) shapes ESG indicators’ discourse or analyzes differences in social norms and the relative morals of ethical investing between the surveyed asset managers and other groups. Another limitation is the lack
of internal investments in building models with nonfinancial indicators.

The following subsections summarize the complementary issues related to the points raised in the previous section.

3.3 | Are ESG indicators risk factors?

One of the discussions about ESG indicators as risk factors occurred in February 2020. The emerging congruence is that ESG indicators are far from being risk factors today. Factors such as momentum, liquidity,
volatility, and others allow asset managers to employ a consistent, systematic, rule-based process that targets a subset of stocks with specific desired characteristics (Grim et al., 2017). There is almost unanimity
that sustainability metrics are lacking. Issues such as data inconsistency, benchmarking, ESG data imputation, and problems with ESG data providers (Kotsantonis & Serafeim, 2019) are widespread.

It should be noted that there is a shared view that, as in Zeidan (2020), pressure for ESG adoption must come from investors and shareholders, with asset managers following their lead. Regardless, members do not view ESG as a risk factor. After all, investors expect to be compensated for taking an extra risk, and there is no systematic evidence that high ESG portfolios outperform more general portfolios.

Some members have expressed that ESG indicators are too loosely related to environmental, social, and governance risks. The models used by asset managers are not readily amenable to restrictions on the strategy space without some counterbalance. In addition, it seems challenging to disentangle ESG indicators from companies that use it for greenwashing and companies that dutifully report threats and actions in these areas. Finally, negative screening can be helpful but has limited practical appeal (Zeidan et al., 2015).

3.4 | Supply chain ESG

Another salient discussion has been on supply chain ESG. A shared concern is that companies may outsource ESG outcomes. For instance, assume that company A has a verticalized operation that produces intermediary goods and the final good. Furthermore, assume that the production process of one of the intermediary products is particularly polluting. The company might choose to sell its productive capacity in this intermediary good to a nonlisted company that is not expected to publish ESG scores.

It is conceivable that publicly listed companies reduce their environmental damage without having any global effect. Companies that publish ESG indicators would become greener over time, but not much would change for society.

Large companies shepherd many initiatives to turn firms in their supply chains greener. Whelan et al. (2017) describe such efforts in the Brazilian beef industry. Nevertheless, members are skeptical that individual
efforts to improve ESG-related outcomes can generate a systemwide transformation. Supply chain sustainability is particularly complex. For instance, Kim and Davis (2016) provide evidence that even though the Dodd-Frank Act gave companies over 3 years to report on whether their products contain “conflict minerals” from the Democratic Republic of Congo, an analysis of the reports of over 1300 corporations have found that almost 80% were unable to determine the country of origin of such materials. Only 1% could certify themselves conflict-free.

According to some members, materiality would be a key feature of ESG data (Busco et al., 2020). However, conversations include many complaints about the quality of current ESG data. Members have argued that it may be impossible to determine if the intrafirm evolution of ESG indicators generates systemic benefits with the existing data. Finally, members disagree that all companies should report financial risks from climate change (as argued by Eccles & Krzus, 2018). Disclosure is costly, and widespread or mandated reporting may generate low-quality information. Furthermore, significant transaction costs are associated with sifting through the ever increasing financial reports. Unless reporting standards disclose meaningful information, there is consonance that companies should notspend resources making such efforts.

3.5 | Fiduciary duty

The flip side of the view that ESG indicators are not risk factors is that fiduciary duty does not constrain the decision space of fund managers. Fiduciary duty requires that managers put the interests of their clients before their own. Globally, many funds use ESG screening to determine the equities that enter their portfolios or change firms’ weights according to their ESG scores without violating this obligation. Usually, the scientific literature states that the relation between ambiguous preferences and asset managers’ capital allocation is complicated by fiduciary duty. For instance, fiduciary duty is frequently used by the trustees of pension funds to justify their opposition to ESG investing (Schanzenbach & Sitkoff, 2020). In the present article, members strongly believe that their role is to follow investors’ directives but do not view fiduciary duty as a barrier to ESG investing.

In the previous section, we have seen that the business case for sustainability relies on transparency about ESG-related outcomes generating long-term value. Evidence for the case is inconclusive, and it may be that we will never honestly know if ESG investing is profitable, given that financial markets are increasingly more efficient, agents adapt to perceived or fundamental changes to their portfolios. Market anomalies tend to disappear after some time (Zaremba et al., 2020), which matters because if the incorporation of ESG information does not generate expected excess financial returns, there must be other forces that speed up ESG diffusion. One such force is investors’ preferences.

Nevertheless, ESG investing poses no ethical dilemmas for surveyed fund managers. No member argued that fiduciary duty is a barrier to adopting nonfinancial metrics as investment criteria. A group member wrote: “fiduciary duty is just a convenient excuse. ESG investing has many problems, but fiduciary conflict is not one of them.”

3.6 | Deus ex machina

Regardless of individual skepticism on the use of nonfinancial metrics by fund managers, investors have the power to get overseers to shift their stance and incorporate ESG factors into financial strategies. According to the textual analysis, pressure from funds’ backers should accelerate ESG investing. After all, there are no technical barriers for model building, and ESG is integrable into regular portfolios (Becker, 2019).

Members observe that if investors demand ESG investing, the financial industry will supply it. Demand for such products already exists, and it is growing. There are reports that ESG assets under management
have reached US$40 trillion (Baker, 2020), or almost 40% of the estimated US$100 trillion in global assets, but this number cannot be easily verified.

Of course, group members may be myopic about their reality. The social investment industry is growing exponentially and can be at the cusp of a tipping point (Riding, 2020), with their funds’ days of non- ESG investing being numbered. Organizational inertia and skepticism allow fund managers to behave as business-as-usual. According to this sample of asset managers from an emerging country, the status quo is far from a dynamic process that integrates sustainability and mainstream strategies as legitimacy making (Hengst et al., 2020). In that sense, the present article provides support for Hengst et al. (2020), who show that “despite the legitimacy of the sustainability strategy at the organizational level, actors experience tensions with its implementation at the action level vis-à-vis the mainstream strategy, thus creating the potential for decoupling.” In addition, even though opportunities for long-term change exist, there seem to be disconnects between the financial and the social frames that limit the extension, amplification, and transformation of investment practices (Himick & Audousset-Coulier, 2016). Asset managers invoke the deus ex machina of investors driving change with their work being an instrument to investors’ goals. In the end, regardless of the agreement with this view, without asset managers buying into it, ESG investing will not reach its full potential.

3.7 | How to move forward

Organization inertia is not the only barrier to ESG investment diffusion. As shown in previous sections, skepticism by fund managers also plays a role, as do institutional retrogression (Avetisyan & Hockerts, 2017). There are some avenues for regulators and investors to pressure fund managers into more socially responsible investments (e.g., Alda, 2019; Garcia & Orsato, 2020). Here, the focus is on standardization and quality of information disclosure and behavioral changes from investors.

It seems that the quality of ESG and nonfinancial information is lacking. That must be resolved by a concerted effort of exchanges and supervisory agencies, locally and globally. Today, large companies provide
better information, on average. But capital markets can only allocate resources more efficiently, in terms of sustainability, if the information for decision-making improves.

However, in the end, fund managers report to their clients. Investors must request that nonfinancial criteria be considered in the investment process, which will force fund managers to comply. Still, as in the case of the quality of information, this is a long process that can speed up ESG investing, but not to the extent that society needs to reduce carbon emissions promptly.


The disclosure of environmental, social, and governance (ESG) factors that allow investors to differentiate listed companies in terms of their nonfinancial performance is a necessary but not sufficient condition for reducing global greenhouse emissions. Unfortunately, ethical investing seems similar to going to heaven; those who claim they want to end up there are in no rush to reach their destination. The main lesson of the present study is that obstacles to the dissemination of ESG investing remain and that regulators and civil society should continue to search for ways to change fund managers’ incentives to guarantee that more ethical investing becomes standard in financial markets.

Some studies have noted that ESG is increasingly more common for red-flagging, risk management, and the adoption of responsible investing (Van Duuren et al., 2016). However, in other studies, ESG data are lacking, and technical aspects for the use of the information that is available limit the dissemination of ESG for the construction of financial portfolios that use positive screening (e.g., Grewal et al., 2020; Kotsantonis & Serafeim, 2019). In this study, by following inductive grounded theory. The information collected from a WhatsApp group composed chiefly of asset managers and other financial professionals is used to enhance our understanding of the praxis of ESG investing. The textual and sentiment analysis is based on 13,125 messages exchanged by the 81 members of the group from June 2017 to December 2020, and sentiment analysis of the exchanged messages reveal a relatively high negative tone that is followed by summing and interpreting arguments on all the 1060 messages related to ESG investing.

Debates on the praxis of ESG investing include the relation between ESG and financial performance, the quality and breadth of ESG data, the technical aspects of building portfolios that incorporate ESG indicators, and more. The evidence shows that no group member incorporates ESG data in their investment strategies or plans to do so. However, some members have attempted to backtest models that include nonfinancial
indicators. Obstacles to the dissemination of ESG investing are that ESG data are found to have severe limitations, ESG indicators are not viewed as risk factors, there is skepticism that ESG investing generates
meaningful improvements in environmental outcomes (for instance, from the possibility that companies outsource parts of their production that are particularly pollution-heavy), and that there is a dearth of ESG-related funds that robustly track nonfinancial performance.

The shortcomings of the present analysis are related to the fact that only expressed beliefs and not actual investment strategies are observed. There is no discussion for which all members voice their opinions. However, interestingly, members rebuff the idea that fiduciary duty, often cited as a significant barrier to including nonfinancial information in performance metrics, hinders their ability to use ESG in financial strategies. Finally, there is a consensus that the main driver for propagating ESG investing is investors’ revealed preferences. If investors mandate that group members integrate ESG data into their investment strategies, asset managers have indicated that they would be able to do so.


The author has no conflicts of interest to declare relevant to this article’s content. The research proposal has been submitted and cleared by the Institutional Review Board.

Rodrigo Zeidan https://orcid.org/0000-0003-2980-3360

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How to cite this article: Zeidan, R. (2022). Why don’t asset managers accelerate ESG investing? A sentiment analysis based on 13,000 messages from finance professionals.
Business Strategy and the Environment, 1–12. https://doi.org/10.1002/bse.3062