Forbes Article – ESG Scoring is Failing: Time for Improvement

July 2, 2020
ESG Perspective and Insights

By George Strobel, Forbes Financial Council Member

Environmental, social responsibility and good governance (“ESG”) standards for business conduct continue to rise in importance as a result of the economic chaos and human suffering caused by the Covid-19 pandemic. While companies are developing more comprehensive criteria, the standards are far from consistent. The reasons for the inconsistencies are numerous, but of greatest concern is the bias of ratings and the lack of public disclosure about the criteria and standards used in making those ratings.

Consequently, unlike financial information reporting, which has relatively standardized, disseminated and objective criteria, the information provided to ratings agencies varies widely by company and lacks verifiability. Even worse, the basis used for evaluating this information is secretly maintained and lacks peer or public review. The result is that the investing public is provided ratings scorecards that are at best inconsistent, subjective and nonverifiable. At worst, the ratings mislead the investing public. The SEC has made note of these failings in its investigation of purported “ESG” focused funds.

One positive outcome of the pandemic is the increased focus on social and governance factors.

Given the desire for more balanced ESG reporting, now should also be the time for the generation of a more functional ESG rating framework. That requires the adoption of objective standards among ratings agencies. By implication, that means subjective criteria and evaluations must play a reduced role in the final ratings report. The objective is for thepublic to have access to the standardized ESG reports, the outcomes of which are not dependent on the firm preparing the report. The goal would be to move far closer to what investors receive in the financial reporting world where the results of a financial audit are not dependent on whether it is prepared by a global auditing firm. The same cannot be said for today’s ESG reporting.

Read the full article here.

Related Posts

Monarch Private Capital Launches Its Own Podcast, Monarch Perspectives

Monarch Private Capital Launches Its Own Podcast, Monarch Perspectives

New podcast series offers insight for investors and developers interested in tax credits and tax equity investing Monarch Private Capital, a nationally recognized impact investment firm that develops, finances, and […]

Read More

Company Announcements Perspective and Insights

Be Open About Business: Interview with George Strobel, Co-Founder and Co-CEO of Monarch Private Capital

Be Open About Business: Interview with George Strobel, Co-Founder and Co-CEO of Monarch Private Capital

Interview by Adam Mendler Monarch Private Capital is proud to share that our Co-Founder and Co-CEO, George Strobel, was recently featured in an in-depth interview conducted by Adam Mendler, a […]

Read More

Company Announcements Perspective and Insights

HR 1 Undermines U.S. National Security and Traditional Republican Energy Policy

HR 1 Undermines U.S. National Security and Traditional Republican Energy Policy

By George L. Strobel II In an age defined by technological competition, particularly in artificial intelligence (AI), the United States cannot afford to neglect the foundational pillars of national power: […]

Read More

Blog Perspective and Insights Renewable Energy

See More News

Contact us for more information about impact investing, federal and state tax credits.