Which of the following is NOT a challenge surrounding ESG?

The correct rationale is that diversification of portfolio typically is not regarded as a challenge specific to ESG investing. Traditional investment principles of diversification can still apply within the context of ESG. Investors can build diversified portfolios that include ESG-compliant assets across various sectors, geographic regions, or asset classes. This means that investors can achieve a well-balanced risk-return profile while adhering to their ESG criteria.

In contrast, the other options highlight significant challenges associated with ESG investing. Data availability and credibility are problematic because reliable ESG data can be scarce, inconsistent, or not comparable across companies and sectors. The characterization of the risk-return profile of ESG funds is another challenge; there is often a lack of clarity and a need for more comprehensive studies to depict these funds’ performance accurately. Finally, the standardization of cross-industry ESG definitions and measurability metrics is crucial because without commonly accepted standards, it becomes difficult to benchmark and evaluate the performance and impact of ESG investments effectively.