ESG scores: an outdated concept

It’s time the investment industry changed its attitude towards ESG scores, argues Dr Tom Steffen.

This post is issued by Osmosis (Holdings) Limited, a London based investment management group. For more information, please contact Lisa Harrison on 07716 912832 or [email protected]

The concept of ESG scores – aggregating hundreds of indicators from diverse and complex topics – is outdated, particularly when repackaged by the investment management industry as an investment signal. The time for change has come.

ESG scores limit true price discovery

Financial markets play a crucial role in price discovery. The trading activity of investors determines the true value of an asset, reflecting all publicly-available information. Such information includes anything that is material to the value of the company including its environmental, social, and governance practices.

The wide-ranging reliance of the investment management industry on aggregate ESG scores by third-party rating agencies limits this true price discovery. Uncovering as of yet unrevealed information on the risks and opportunities presented by firms’ sustainable and responsible behaviours and tying them back to corporate valuation requires detailed data and profound research; yet most investors rely solely on the high-level information captured in ESG scores.


Read Full Article

Share on linkedin
LinkedIn
Share on email
Email

Important Information

This document is issued by Osmosis Investment Management US LLC (“Osmosis”). Osmosis Investment Management UK Limited (“Osmosis UK”) is an affiliate of Osmosis and has been operating the Osmosis Model of Resource Efficiency. Osmosis UK is regulated by the FCA. Osmosis and Osmosis UK are both wholly owned by Osmosis (Holdings) Limited (“OHL”).

Investor type selector

This site is designed for professional investors only.

Looking for investment insights, thought leadership and resource efficient case studies?

Once a month, we curate the best of our insights for our subscribers. Sign up to our newsletter here.