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Divergent ESG ratings

Journal

Journal of Portfolio Management

Subject

Finance

Publishing details

Journal of Portfolio Management 2020 Vol 47:1 p 75-87

Authors / Editors

Dimson E;Marsh P;Staunton M

Biographies

Elroy Dimson Paul Marsh

Publication Year

2020

Abstract

Responsible investors require data to underpin their stock and sector selections. Regardless of the rating agency, bond ratings for a particular issuer are broadly similar. This is not the case for ESG ratings. Companies with a high score from one rater often receive a middling or low score from another rater. This article examines the extent of, and reasons for, disagreement among the leading suppliers of ESG ratings. The weightings given to each pillar of an ESG rating also vary across agencies. Many asset managers contend that ESG ratings can help investors to select assets with superior financial prospects, and the authors therefore review the investment performance of portfolios and of indexes screened for their ESG credentials. In the authors’ opinion, ESG ratings, used in isolation, are unlikely to make a material contribution to portfolio returns.

Keywords

Equity portfolio management; ESG investing, foundations and endowments; Performance measurement; Wealth management

Available on ECCH

No


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