We recently found an interesting piece published by “The sustainability institute by ERM”, its called “Rate the raters” and is the latest (2023) of an annual survey where ESG raters has been rated by practitioners in corporates and in investments. Link to the report can be found at the end of this post.
To be honest, a lot of the findings come to no surprise, but getting confirmation on your beliefs and getting numbers is always interesting!
So we are not very surprised that there is still confusion around several of the leading ESG ratings and what they represent, the ecosystem of rating systems is even described with words like “low confidence” and “discontent”. Investors responding to survey trust the raters accuracy at 3.3 on a scale 1-5 on average, and only a two of the surveyed raters was rated as “very useful” or “useful” by more than 50% of the respondents. This is not very impressing numbers considering many of the ratings rated in the survey are widespread and could more or less be called industry standards.
Not too surprising from this, the most common source of ESG data for the investors come from inhouse research, according to the survey. This can, however, also a good thing in our minds. We have always been strong advocates for investors to do their own analysis and having an in-house process for securing the data you need is a sort of proof of at least an effort to make a proper and thorough analysis has been made. The flip side of this is that the shortcomings of the ratings and data providers are vast, and the only way to make up for it is by spending time getting your own data. If you recognize yourself in this situation, we recommend the report from Citi we wrote about in our other blog post (https://sanctify.ai/170b-in-extra-profits-just-from-ai/) to learn more about the value of AI automation in finance.
To read the full report please follow this link: https://www.sustainability.com/thinking/rate-the-raters-2023/
