Our thinking

Does the world really need another ESG rating?

21 January, 2021

2020 was the year responsible investment (RI) went mainstream. The rise in environmental, social and governance (ESG) management has resulted in a proliferation of ESG-based ratings and ranking platforms, launching to help investors make decisions about where to put their money. 

Differences in scoring systems have led to fears of ‘greenwashing’ as shown by the example of Boohoo. Last year, MSCI and a number of other ESG indices surprised many by scoring Boohoo with a double-A ESG score, which distinguished them as being above industry average in terms of good supply chain labour practices. Shortly after the MSCI scoring, Boohoo’s Leicester factories hit the UK headlines, due to a human rights scandal. This example calls into question the rigour of some ESG scoring – surely it should have picked up Boohoo’s bad track record in sustainability, dating back to 2006? 

So, while we don’t need a greater quantity of ratings – we do need higher quality. So, it was with interest that we saw Bloomberg and Rockefeller Asset launching a new multi-factor ESG Improvers Index this week. Unlike other ESG indices, the index ranks a company’s improvement in performance on material ESG issues relative to industry peers. 

We are yet to see whether this new index will solve any of the ESG ratings challenges, but providing comparative performance ratings is such an important part of creating change that we’ll definitely be watching. 

By Gemma Coate