Financial analysts are siloing ESG. This must change

Most ESG issues are subtle, and financial models need to start reflecting this

Financial analysts are treating ESG as a standalone issue. In reality it is integrated in every business operation. Image generated by Leonardo AI

TLDR: Analysts tend to look for direct links between ESG factors and financial performance, for example having to interrupt production at a factory due to a massive flood. Many effects of ESG factors are, however, more subtle than this. ESG performance is deeply integrated in business operations, which means that every ESG factor has a potential influence on financial performance. Both ESG risks and ESG opportunities play a role, and analysts need to consider not only the impact of ESG on a business, but also the impact of a business on ESG factors in its operative environment. Wangari aims to build financial models that link each ESG factor to relevant financial variables.

Financial analysts face immense pressure every day. They need to build financial models for many companies, dig deeper and write industry reports, maintain great relationships with their clients, and stay innovative enough to impress their managers while not straying too far from market consensus.

On top of all of this, over the past few years analysts have gotten a new item on their plates: ESG.

Many analysts have not been trained in using data with units like megatons instead of…