Tough stance on fact-based sustainable investing vindicated, by Daniel Aguet, Deputy CEO and Index Director of Scientific Beta.
Tough stance on fact-based sustainable investing vindicated
Global index provider Scientific Beta, with its roots in academic research, has long been vocal in raising the awareness about subjective and opaque ESG data – advocating the use of fact-based metrics instead of mere opinions to design systematic equity strategies.
“Research from Scientific Beta has shown that ESG scores diverge significantly from one provider to another, and are largely unreliable. Hence, they reflect mostly opinions rather than objective facts” said Daniel Aguet, Deputy CEO and Index Director of Scientific Beta.
Moreover, in-house research, corroborated by academic findings, shows that ESG data is not a reliable source of risk-adjusted financial outperformance. Hence the objective of a sustainable investment strategy should not be an illusory quest for financial alpha.
This means that investors’ sustainability-related goals are best handled without mixing up the financial and sustainability levers in the construction of investment portfolios. For investors who wish to meet sustainability goals or constraints, this requires addressing the three dimensions of investments, namely sustainability, financial performance and financial risks, at distinct steps of the portfolio construction, using distinct data inputs.
“For Scientific Beta, there are three intertwined concerns in sustainable investing: being realistic about the objectives that investors can achieve, relying on fact-based metrics to reach them and implementing them in a traceable portfolio construction process”, Mr Aguet said.
As an example of fact-based climate input, Scientific Beta has developed the Climate Transition Risk Beta (CTR Beta). It is based on both a transparent and academically validated methodology while using publicly available raw data inputs. It overcomes the shortcomings of backward-looking carbon emissions data, by extracting relevant information from market prices, which represent a sort of consensus between a multitude of investors, on which companies are deemed to be hurt or to benefit from future shifts in climate transition risks.
“By construction the CTR Beta is forward-looking and reflects climate-related information deemed to be material by investors. Such a market-based metric also inherently benefits from the wisdom of crowds effect”, Mr Aguet said.
This robust approach to sustainable investment strategies and data points received recognition at the ESG Investing Awards 2025 in London this month, with Scientific Beta picking up the award for ‘Best ESG Index Provider’.
For further insights:
- On subjective ESG scores: Can We Make ESG Scores Great Again?
- On flimsy ESG alpha: Honey, I Shrunk the ESG Alpha: Risk-Adjusting ESG Portfolio Returns
- On integrating fact-based climate risk metrics in investment strategies (CTR Betas): Addressing Both Sides of the Transition Coin
About Scientific Beta
A subsidiary of SGX Group, Scientific Beta is a leading provider of enhanced systematic equity strategies grounded in rigorous research.
Its evidence-based indices integrating sustainability and financial goals enable global investors to make well-informed portfolio decisions as they navigate complex and evolving markets.