Pradip Seth, Founder & CEO, S-Ancial
December 16: The growth in Environmental, Social and Governance (ESG) Investing has accelerated over the past few years, and the corpus of professionally managed portfolios, which include key elements of ESG factors, exceeds USD 17.5 trillion globally. Mirroring this trend, the growth of ESG-focused traded investment products that are available to investors exceeds USD 1 trillion and continues to grow at a fast pace. ESG investing has also gained interest recently from the public sector as well. Central banks across countries have expressed support to spur the transition of financial systems toward low-carbon economies.
Growth in ESG segment
The growing investor interest in ESG factors reflects that it can affect the long-term performance of issuers while reducing the propensity for controversies that erode stakeholder trust and should therefore be given appropriate consideration in investment decisions.
Keeping the growing demand in view, the industry is creating more products that are related to ESG ratings, indices, and funds. ESG indexes, equity and fixed-income funds and ETFs are now manyfold in numbers and are increasing quickly. A lot of options are available; low-risk products such as money market funds, passive smart beta ETFs, and even hedge funds are a few which involve ESG investing.
Accuracy of ESG ratings
There is a marked increase in ESG rating providers. But are these ratings helping investors with the right assessment for their needs? Are investors confident in these ratings and their accuracy? I think it will be inadequate. Also, there is a lot of room to catch up on both the quality and relevance of the underlying data, as well as concerns that this data is not updated in a timely fashion.
Even though progress has been made, a crucial point remains on the alignment with the materiality of factors. ESG ratings tend to vary greatly from one rating provider to another. They may relate to different measures, key indicators and metrics data and use qualitative judgement. Incorrect data, outdated data, irrelevant data, biased data, and little-to-no-real analysis lags ratings.
The majority of traditional ESG ratings providers have a heavy reliance on web scraping for their assessments. While Web scraping can be a useful tool, there is a general lack of easily obtainable ESG data apart from the company supplied information. This means data supplied by companies become a meaningful portion of underlying support for ascertaining rating is a cause for concern. If one were to instead web scrape press releases and websites of public companies and use that for automated decision processes on whether to buy or sell shares, it would be a recipe for investment disaster.
I see the ESG ratings based on such automated processes as equally disastrous. Quantitative screenings do not tell the whole story of the company.
Assigning an overall rating across all companies and industries is indeed a difficult task. It requires a third-party confirmation of important data and trends and the nuances of reading management comments and the other company information. Until the current ESG rating incorporates the skills we expect, the ratings will be too simplistic or simply incorrect to lead to any real value.
From a broader perspective, there is a definite standardization of ESG rating parameters on the horizon. Various bodies, among which GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board) and TCFD (Task Force on Climate-Related Financial Disclosures) are now involved in assessing the use and consistency of ESG information, its materiality across industries, and how this information should be prioritized and scored.
About Exchange Connect
ExchangeConnect is an Investor Relations company. Their interactive B2B platform, ExchangeConnect facilitates Capital market participants to colligate and engage in better price discovery through AI enriched data and interactions.
The company assists listed companies distinguish their investor relations programs. They enable listed corporates, institutional investors and brokerage houses to congregate on their platform. They go beyond providing a seamless flow of data and information by using technology that enriches the data quality; hence the value of interactions is greatly enhanced.
Their proprietary AI engine churns both structured and unstructured data received from public information available with listed corporates and processes it using algorithms to reduce much of the manual work. They produce outstanding actionable insights for both corporates and investing institutions having highly predictable and consistent quality through Automation, AI and Machine learning.
11 thoughts on “How Credible is The Incredible ESG Rating?”
Hey just wanted to give you a quick heads up. The words in your content seem to be running off the screen in Ie. I’m not sure if this is a formatting issue or something to do with web browser compatibility but I figured I’d post to let you know. The design look great though! Hope you get the issue resolved soon. Many thanks
Hello there! Quick question that’s entirely off topic. Do you know how to make your site mobile friendly? My blog looks weird when viewing from my iphone. I’m trying to find a template or plugin that might be able to resolve this problem. If you have any suggestions, please share. Many thanks!
The next time I read a blog, I hope that it doesnt disappoint me as much as this one. I mean, I know it was my choice to read, but I actually thought youd have something interesting to say. All I hear is a bunch of whining about something that you could fix if you werent too busy looking for attention.
Howdy would you mind stating which blog platform you’re working with? I’m planning to start my own blog in the near future but I’m having a tough time making a decision between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your design and style seems different then most blogs and I’m looking for something unique. P.S My apologies for getting off-topic but I had to ask!
Generally I do not read article on blogs, but I wish to say that this write-up very forced me to check out and do so! Your writing taste has been amazed me. Thank you, very nice post.
Hey! I could have sworn I’ve been to this blog before but after checking through some of the post I realized it’s new to me. Anyways, I’m definitely delighted I found it and I’ll be book-marking and checking back often!
Good site! I truly love how it is simple on my eyes and the data are well written. I’m wondering how I might be notified whenever a new post has been made. I have subscribed to your feed which must do the trick! Have a nice day!
I have been exploring for a little for any high-quality articles or blog posts on this sort of area . Exploring in Yahoo I at last stumbled upon this web site. Reading this info So i’m happy to convey that I’ve a very good uncanny feeling I discovered exactly what I needed. I most certainly will make certain to don’t forget this web site and give it a look regularly.
Hey! I know this is kinda off topic but I was wondering which blog platform are you using for this website? I’m getting fed up of WordPress because I’ve had problems with hackers and I’m looking at options for another platform. I would be great if you could point me in the direction of a good platform.
Oh my goodness! Incredible article dude! Thank you, However I am going through troubles with your RSS. I donít
understand why I am unable to join it. Is there anybody else getting identical RSS problems?
“성인망가” Anyone who knows the answer will you kindly respond? Thanx!!
Please reply back as I’m planning to “오피뷰”
create my very own website and would love to find out where you got this from or exactly what the theme is called. Thanks!