Without a unified guideline to clearly define environmental, social, and governance principles, investors will have to make do with a wide range of socially responsible-related investment themes that may or may not fully adhere to the spirit of ESG investing.
"Perhaps the best way to think of ESG ratings is like the buy/sell/hold recommendations of Wall Street analysts: These are opinions. They will sometimes be right and sometimes wrong, and you might choose to pay attention to someone whose approach you respect. But as with an analyst recommendation, most of the value comes from the underlying discussion, not the ratings themselves. If you doubt that, take a look at S&P, Refinitiv, MSCI and Sustainalytics: All four now give away their ratings, but charge for the full report," James Mackintosh writes for the Wall Street Journal.
For example, Credit Suisse may have received a failing grade on the governance aspect of ESG, but only if an investor looked at the right ratings agency, with the Swiss bank taking on an excellent, terrible, or neutral score depending on which agency is making the ratings.
Credit Suisse just lost its chairman, António Horta-Osório, who quit after breaching COVID-19 quarantine rules. The current chief executive was hired after the last was fired in response to revelations that a former employee was being spied upon. Furthermore, the executives had been rebuilding Credit Suisse after its board reported careless risk controls and heavy lending losses on failed hedge fund Archegos Capital Management and Greensill Capital.
Even with these governance problems, the various ratings agencies can't agree on a single ratings score for Credit Suisse.
Among the various rating agencies, S&P Global was the most negative on Credit Suisse’s governance, giving the bank a 15% score for corporate governance, or 725th out of the 747 banks and diversified financial groups globally rated.
On the other hand, Refinitiv was the least critical of Credit Suisse, giving the bank a score of 95% on its “management” category and 81% for governance as a whole.
With a more lukewarm analysis, MSCI ranked Credit Suisse as having average governance.
"This is symptomatic of one of the great difficulties for those who promote ESG as a way to use capitalism to change the world: If the experts have wildly differing opinions on a basic matter such as good governance, how can we expect agreement on more controversial topics such as the environment, employee relations or social impact?" Mackintosh said.
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