Since 2010, when SustainAbility firstly “Rated the Raters,” the interest in CR and ESG have raised. The industries that rate ESG have been furnished and many ESG systems. This trend leads opportunities in ESG index. Apart from billions of dollars of exchange-traded funds based on ESG indexes, more fund managers are promoting investment with better ESG ratings, encouraged by public mutual-fund ESG scores.
However, since the methodologies among these systems vary, the result of the companies got from different ESG system also varies. In other words, a company can be rated as a terrible player in one system while being rated as a leader in another one.
MSCI gives Tesla a near-perfect score for environment, because it has selected two themes as the most important for the car industry: the carbon produced by its products, and the opportunities the company has in clean technology.
These were written by Mackintosh (2018) published in The Wall Street Journal. The various system has been criticised. Although all the raters aim to be objective and justified, there is always bias in between. Managers and investors may get lost in pursuing higher indexes. SustainAbility, therefore, compare the raters by rating them.
It is easy to found that RobecoSAM is very popular in industries and is regarded as the most useful one, while RobecoSAM and CDP is referred as leaders in raters.
Although CDP, as a leader, keeps improving their questionnaire and trying to reduce the difficulty of responding. It is still a very big challenge for many firms to respond to the questionnaire. “We are trying to find more efficient ways for responders to deal with long questionnaires & ensuring public data if used, is comparable” said by Lukas Brochard, Associate Director of CDP.
From another perspective, investors mainly looking for the following three indicators for ESG disclosure 1. Accuracy 2. Consistent methodology 3. Insights & connection to financial impact. Given by CR Director of Intel.
According to the report of sustainAbility (2019), the reliability of data, the transparency of methodologies and the related issue are the key when companies are seeing ESG index.
By the time being and with the demand of customers, it is clear that the need for transparency has been raised. The challenge now is how to disclose the data. Whether to disclose the data on a volunteer-based or applied blockchain to make sure the reliability? How to improve transparency while protecting confidential information.
Reference:
Machintosh J. (2018) Is Tesla or Exxon More Sustainable? It Depends Whom You Ask. The Wall Street Journal
SustainAbility (2019) Rate the Raters Expert Views on ESG Ratings
