Companies With Good ESG Scores Pollute Just As Much As Those With Low Ones, New Analysis Finds

As if there wasn’t exhaustive sufficient proof that “ESG” is nothing however a rip-off, the Financial Times was out this week with a chunk detailing what number of firms with good ESG scores pollute simply as a lot as their lower-rated rivals.

Don’t say we did not warn you; we have now been writing concerning the ESG con for years now, which together with different “sustainable” investments continues to see tons of of billions of {dollars} in inflows from buyers. 

The FT added to our skepticism by revealing this week that Scientific Beta, an index supplier and consultancy, discovered that firms rated extremely on ESG metrics – and even simply the ‘Environmental’ variable alone – typically pollute simply as a lot as different firms. 

Researchers have a look at ESG scores from Moody’s, MSCI and Refinitiv when performing the evaluation. They discovered that when the ‘E’ element was singled out, it led to a “substantial deterioration in green performance”.

Felix Goltz, analysis director at Scientific Beta instructed the Financial Times: “ESG ratings have little to no relation to carbon intensity, even when considering only the environmental pillar of these ratings. It doesn’t seem that people have actually looked at [the correlations]. They are surprisingly low.”

He added: “The carbon intensity reduction of green [ie low carbon intensity] portfolios can be effectively cancelled out by adding ESG objectives.”

“On average, social and governance scores more than completely reversed the carbon reduction objective,” he continued. “It can very well be that a high-emitting firm is very good at governance or employee satisfaction. There is no strong relationship between employee satisfaction or any of these things and carbon intensity.”

“Even the environmental pillar is pretty unrelated to carbon emissions,” he mentioned. 

Vice-president for ESG outreach and analysis at Moody’s, Keeran Beeharee, added: “[There is a] perception that ESG assessments do something that they do not. ESG assessments are an aggregate product, their nature is that they are looking at a range of material factors, so drawing a correlation to one factor is always going to be difficult.”

“In 2015-16, post the SDGs [UN sustainable development goals] and COP21 [Paris Agreement], when people began to really focus on the issue of climate, they quickly realised that an ESG assessment is not going to be much use there and that they need the right tool for the right task. There are now more targeted tools available that look at just carbon intensity, for example,” he added.

MSCI ESG Research instructed the Financial Times its scores “are fundamentally designed to measure a company’s resilience to financially material environmental, societal and governance risks. They are not designed to measure a company’s impact on climate change.”

Refinitiv instructed FT that “while very small, the correlation found in this study isn’t surprising, especially in developed markets, where many large organisations — with focused sustainability strategies, underpinned by strong governance, higher awareness of their societal impact and robust disclosure — will perform well based on ESG scores, in spite of the fact that many will also overweight on carbon”.

Global director of sustainability analysis for Morningstar Hortense Bioy concluded: “Investors need to be aware of all the trade-offs. It is not simple. In this case, investors need to think carefully about which aspects of sustainability they would like to prioritize when building portfolios: carbon reduction or a high ESG rating.”