Transparency, Investment Ratings and Stakeholder Engagement

[Miriam Davidovic]

“Investment firms have been capturing trillions of dollars from retail investors, pension funds, and others with promises that the stocks and bonds of big companies can yield tidy returns while also helping to save the planet or make life better for its people….Yet there’s virtually no connection between MSCI’s “better world” marketing and its methodology. That’s because the ratings don’t measure a company’s impact on the Earth and society. In fact, they gauge the opposite: the potential impact of the world on the company and its shareholders.” https://www.bloomberg.com/graphics/2021-what-is-esg-investing-msci-ratings-focus-on-corporate-bottom-line/

[Margaret Mondlane]

Thanks for sharing this insightful article it shows that even though an entity may have a high ESG score; critical review is needed of what their underlying ESG tools and metrics are being used to derive their rating. Also what ESG impacts are being ignored as some negative impacts may not fit in the KPIs of the rating system, intentionally or unintentionally. Additionally is there duplicity is taking place in the organization’s ESG impacts.

“Scoring companies on ESG criteria is nothing like rating them for creditworthiness. Different credit rating agencies almost always give the same ratings, because their assessments are based on identical financial data and they’re all measuring exactly the same thing: the risk that a company will default on its debts. The U.S. Securities and Exchange Commission regulates credit raters.

MSCI and its competitors in ESG rating, by contrast, often disagree with one another, sometimes wildly. That’s because each ESG rating provider uses its own proprietary system, algorithms, metrics, definitions, and sources of nonfinancial information, most of which aren’t transparent and rely heavily on self-reporting by the companies they rate. No regulator examines the methodology or the results.”