Responsible-Investing Pioneer Lydenberg Says ESG Needs An Upgrade

STEVE LYDENBERG’S passion for social change was inspired by anti-Vietnam War demonstrations, consumer boycotts, and the movement to divest from apartheid South Africa. But he didn’t take to the streets. Instead, Lydenberg turned to the world of finance to help catalyze societal change.

- SAIJEL KISHAN

In 1990 he co-founded KLD Research & Analytics, the first firm to conduct environmental, social, and governance analysis of S&P 500 Index companies and sell that research to Wall Street. While there, he co-created the first socially responsible investing index of U.S. companies, now called the MSCI KLD 400 Social Index. But, as investor appetite for ESG data and sustainable investments has grown, Lydenberg says ESG has fallen short in addressing systemic issues such as inequality and climate change. So in 2015, he co-founded The Investment Integration Project, known as TIIP, to encourage what it calls system-level investing. Lydenberg, who turns 76 in October, spoke with Bloomberg Markets in August. The interview has been edited for length and clarity.

SAIJEL KISHAN: How did you get into ESG? Did you have a background in finance?

STEVE LYDENBERG: None whatsoever. My only advanced degree is in theater arts and playwriting from Cornell. I was in New York City in the mid-1970s for the theater scene, to see if I could get my plays put on. I didn’t want to wait on tables, so I thought, “Let me do some interesting research,” because I like research. I was concerned about the war in Vietnam and the economy, and I basically stumbled on the Council on Economic Priorities. They were one of the first organizations that was trying to rate and rank companies on social and environmental issues. It was aimed primarily at consumers, and the consumer-boycott theme at the time was very strong. I worked for them for 12 years before I decided that this was a career.

SK: How did you make the jump to finance?