Stop Guessing and Start Tracking : Guidelines for Measuring Sustainability Performance of Funds

Abstract: Conscious customers and the threat of regulations have compelled capital markets around the world to increase their sustainability focus. Today, a fund manager must know how to measure and communicate the sustainability of her fund’s portfolio, which raises the question of how such measurement should be designed? By interviewing decision makers at one of Sweden’s major fund management firms and examining existing sustainability metrics, we identify the key features practitioners want from a sustainability measurement and discuss how existing metrics relate to this. We find that there is an increased need for: (i) capturing the positive contributions the companies in the portfolio have towards a sustainable development, (ii) including each company’s internal capabilities, which reflects important information about the likelihood of future contributions, (iii) relevant peer groups in order to understand the context of a company’s score, and (iv) understanding that sustainability is not a one dimensional issue and therefore should not be treated as one. To meet this need, we argue that the emerging group of metrics based on the United Nations Sustainable Development Goals could be used as a complement to the currently used risk-focused sustainability metrics.