![]() ![]() ![]() Another says that in some countries, such as France, too much data-mining on workers may violate privacy laws. One talks of them dismissively as “extra-curricular activities”. Moreover, it found that the mere act of disclosing well-crafted climate strategies determines the e score more than the quality of interim targets or the steps actually taken to reach them.Īsset managers say that for all the misgivings about e scores, they are more trustworthy than s ones, which many would like to exclude. It noted companies with high esg scores also frequently had high emissions. The oecd club of mostly rich countries found that some esg rating agencies put less emphasis on e than the other two bits of esg, so that investing in companies with high esg scores does not necessarily imply they are managing carbon emissions well. And they assign different weights to their esg scores, such as putting more emphasis on labour practices rather than lobbying.įor now, regulators put most attention on how the firms rate environmental practices. They measure differently, with one assessing labour practices based on employee turnover, and another counting the labour-related court cases against the firm. On scope, one rating agency may include corporate-lobbying activities, but another may not. The “Aggregate Confusion” paper spells out how ratings differ in what it calls scope, measurement and weightings. ![]() Whereas the credit-rating arms of Moody’s, s&p Global and others produce results that are close to 99% correlated, esg scores produced by them and other firms such as Sustainalytics and msci tally barely more than 50% of the time. The biggest is in the disparity of their ratings. Securities supervisors such as the eu’s European Securities and Markets Authority hope to change that.Įsg raters sometimes like to seem like credit-rating agencies, which have a long (albeit chequered) history. It notes that the market is largely unregulated. It asks whether they suffer conflicts of interest by providing consulting services to companies they rate, and whether they incorporate developing as well as developed-country firms. The International Organisation of Securities Commissions ( iosco), a regulatory body, says there is little clarity on what esg raters intend to measure and what their methodologies are. There are plenty of other criticisms of the business, and not only from the likes of Elon Musk (Tesla’s impact report of 2021 opens with a blistering attack on esg rating methodologies, calling them “fundamentally flawed” because they do not assess the scope of positive impact on the world, but only “the dollar value of risk/return”). The title of a recent paper on divergent esg ratings by Florian Berg, Julian Kölbel and Roberto Rigobon, from mit Sloan School of Management, sums it up. But a lack of reliability, comparability and transparency in what is being measured produce too much noise to provide accurate signals. The idea behind esg ratings is to measure how exposed a company is to non-financial risks, and drive its share price and cost of capital accordingly, forcing laggards to shape up-or go out of business. In 2020 Sustainalytics became wholly owned by Morningstar, the fund-tracker firm. esg rating companies, which have grown to as many as 160 worldwide, have begun to consolidate. Growing concerns about climate change and rising inequality after the 2007-09 financial crisis have increased demand for data on the e and s sides as well. ![]()
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