ESG rating
Assessment of an entity's environmental, social and governance performance by a specialized agency, marked by low correlation across providers.
An ESG rating is an assessment of the environmental, social and governance performance of a company or issuer, produced by specialized agencies such as MSCI, Sustainalytics or ISS. It aggregates a multitude of indicators into a synthetic score intended to guide investment and underwriting decisions. The most documented structural flaw of these ratings is their low correlation: two agencies can assign divergent scores to the same company, unlike credit ratings which converge strongly. This divergence stems from differences in scope, weighting and measurement, and undermines the use of scores as an unambiguous signal. For the financial sector, the heterogeneous reliability of ESG ratings complicates the application of exclusion policies and exposes to greenwashing risk when a favorable score masks a contestable reality. The European regulator is working to frame the activity of ESG rating providers.
Hypothetical case: a company rated favorably by one agency and unfavourably by another illustrates the divergence problem that undermines the comparability of ESG scores.
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.