https://arab.news/5fap7
Environmental, Social, and Governance (ESG) ratings are increasingly influencing global investment decisions and can be used to distribute billions of dollars every year. However, in many angles these evaluations seen as not transparent and are inconsistent, which is an issue even though they have gained momentum. With such inconsistent ratings, unclear processes and absence of government regulation, investors are facing challenges in maintaining their reliance. The involvement in the ESG ratings landscape will be characterized by transparency and honesty as the governments make new disclosure requirements. This is where age of accountability in the ratings starts.
Due to the lack of similarity in the criteria used by all rating organizations, there has been questioning of the reliability of ESG ratings. In comparison to the 0.92 correlation between conventional credit ratings, ESG ratings of the various agencies are only correlated at 0.54 based on a study of the MIT Sloan Sustainability Initiative. Here the difference between the providers about the concept of good ESG performance is seen.
The inconsistency of the ESG technique is demonstrated, for instance., by the fact that Tesla, Inc. has gotten outstanding environmental ratings in some agencies and awful ratings in others. Research shows that depending on the data and weighting method applied, the degree of agreement between the suppliers of ESG can be between 38 and 71%. The same business might appear to be a market leader or a market laggard with different rating agencies, and this would hurt investor confidence and bring the financial markets to their knees.
