ESG “Scores” unhelpful for Investors

Posted on May 29, 2020 by Editor

This week the US Securities and Exchange Commission (SEC) held a (virtual) meeting of the Asset Management Advisory Committee.

Amongst other topics, on the agenda were questions of private investments in relation to Environmental, Social and Governance (ESG) issues. SEC Chairman Jay Clayton introduced the committee by underlining why, for him, the current system of ESG ratings and scores is unhelpful for investors:

“I believe that in many cases one or more “E” issues, “S” issues, or “G” issues are material to an investment decision, I have not seen circumstances where combining an analysis of E, S and G together, across a broad range of companies, for example with a “rating” or “score,” particularly a single rating or score, would facilitate meaningful investment analysis that was not significantly over-inclusive and imprecise.”

As regular readers will know, in our view, Clayton has highlighted an important issue here. Combined ratings make no sense and do not allow for effective analysis or comparison of the different data points that could be material across different industries and for different investors. Instead standardised, digital XBRL disclosures of non-financial information such as carbon use would allow investors to make informed, autonomous decisions based on easily comparable and usable data.

Read Jay Clayton’s opening remarks to the Committee here.

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