Third party sustainability ratings can be used effectively if paired with unconventional metrics to help evaluate whether an investment idea is environmental, social, and governance (ESG) compliant, according to Schroders.
The firm’s portfolio manager and sustainability specialist, Katherine Davidson, said ratings were often backwards looking and reactive to controversies than predictive of controversies.
“They also often reward disclosure or greenwashing rather than an actual genuine commitment to sustainability,” she said.
“…they’re [ratings] are opaque and quite inconsistent in the way they score companies.
“So, when you compare the scores from an MSCI, a Sustainalytics, and a Thomson Reuters you get very different results and it’s hard to know how the companies have come up with those numbers.”
Watch the video above to find out how ratings along with unconventional data can be used together to give a clearer picture of an investment’s ESG approach and to avoid rewarding “companies that have a shiny ESG report when they are not really committed to corporate responsibility”.