Forbes Article – ESG Scoring is Failing: Time for Improvement
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.
Related Posts
Monarch Private Capital Launches New Website
Jan 27, 2021
Educates visitors on combining tax credit equity and ESG investing Monarch Private Capital, a nationally recognized tax-advantaged investment firm that develops, finances, and manages a diversified portfolio of projects that […]
Forbes Article – Tax Equity And ESG Investing: The Best Of Both Worlds
Nov 9, 2020
Many people have heard of environmental, social and governance (ESG) investing. To a much lesser degree, investors have heard of tax credits and tax equity or tax credit investing. And even fewer investors […]
New Incentive in Georgia Creates Solution for State Tax Deduction Limitation
Jul 13, 2021
By Ryan Degnan, Senior Financial Operations Analyst Georgia legislators have created a new incentive that can reduce federal tax liability. Georgia taxpayers can now benefit from an elective entity-level tax […]