Conflicting ESG Ratings Are Confusing Sustainable Investors

Environmental, social, and governance investing is gaining popularity not only for its “feel-good” factor but also for its potential to spot financial risks that often cannot be identified in a company’s quarterly results. The threats that climate change poses to a supply chain or the scandals that could arise from a discriminatory workplace may have a dramatic impact on a company’s future performance. The trouble is these risks are hard to measure and rarely disclosed.

This presents a challenge for the insurers, pensions, family offices, and other large investors looking to improve the long-term sustainability of their portfolios. It’s also creating demand for services from ESG data companies that provide research and ratings on how well companies are addressing environmental, social, and governance concerns. “ESG data and ratings are a huge industry, as everyone will be needing it. So it’s becoming mainstream,” says Axel Pierron, co-founder and managing director at the consulting firm Opimas.