Highlights and insights:
“In its current state, the ESG ratings market is experiencing several challenges. Firstly, the need for greater transparency from ESG rating providers about what the objective of a rating is, the methodology used, and the ESG data that the rating relies on. Once this is established, there follows underlying problems with the availability, quality, and coverage of ESG data that is currently being reported.
As previously demonstrated in the IRSG report on ‘Accelerating the S in ESG’, it is evident that social issues are not as tangible as environmental or governance issues, consequently there is less mature data in this area. Where coverage is incomplete, making confident risk assessments based on an ESG Rating is harder and more costly to undertake.
Fulfilling the ESG promise requires long-term, seismic shifts across industries. To make ESG data pay dividends in the long run, financial institutions– as well as their regulators – need to get on the front foot and consider their sustainability and data agendas in tandem. Greater clarity in ESG ratings is reliant on creating greater clarity in the ESG data inputs to begin with, coupled with the increased transparency from ESG raters on their methodology.”