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
Restoring the Environment through Clean Energy
Jun 26, 2020
A look at Logansport Solar and its unique benefits to the community As years pass and seasons change, it’s becoming clear that renewable resources not only are the future, but ultimately, they’re […]
Georgia State Tax Planning
Sep 22, 2020
As we approach the final tax return filing deadline for individual and corporate taxpayers, there is increased activity in the market for Georgia film tax credits as well as Georgia […]
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 […]