The Social Origins of ESG?: An Analysis of Innovest and KLD

Abstract

This paper uses the study of two ESG data vendors – KLD and Innovest – to exemplify the “social origins of ESG” argument made by Eccles and Stroehle (2018). Based on in-depth interviews with the organizations’ founders and historical document analysis, we recap the history of the cases and show how different origins, philosophies, and “purposes” of ESG shaped the methods and data characteristics of two of the most important data vendors of their time. We discuss why MSCI chose to continue with the financial value-oriented methodology of Innovest, while discontinuing the values-driven KLD. We show that not only the creation, but also the use of “non-financial performance” concepts rely on processes of social construction. Finally, with this paper we join the call for more explicit contextualization of ESG data, highlighting that both practitioners and academics need to better understand the social construction that underlies analyses which use different concepts of ESG.