Integrating ESG Information in Active Fund Management

This chapter examines how expert fund managers integrate Environmental, Social, and Governance (ESG) information into active fund management, focusing on the motives behind ESG integration, the sources of ESG information, and the role of intuitive expertise. The study reveals that financial value remains the dominant motive among fund managers, with ESG integration being a strategic adaptation to external expectations rather than a shift from return maximization. The key competency for fund managers is assessing the financial materiality of ESG information, which is challenging due to the dynamic nature of materiality and the generally low quality of ESG information. The interviews show that while analytical expertise is central in ESG investing, intuitive judgments are considered equally important. The interviewees emphasized the critical importance of an agile investment approach grounded in intuitive expertise, balancing overreaction and underreaction to information. The chapter concludes by highlighting the importance of direct engagement with companies and their managers in navigating the persistent quality challenges associated with ESG information.