The legacy of the inherently subjective socially responsible investment (SRI) methodologies is that the gathering of basic data for assessing a company’s environmental, social and governance (ESG) rating has been inconsistent, unreliable and, more crucially, almost entirely based upon corporate self-reporting. All of the existing ratings agencies -“ DJSI, CSI, FTSE4Good, etc -“rely on information provided by the companies and corporations themselves, with little or no external verification of fact. The point is that ESG is still an emerging area, and has outpaced the existing sphere of legal knowledge. Amongst other things this has led to the wide perception of ESG ratings, and their vital analysis of a company’s performance and risks, as little more than public relations tools. The importance of ESG ratings and corporate social responsibility compliance as an accurate quantitatively based calculation of company value and defined ESG risks has become widely accepted. Ranging from the effect on corporate reputation and brand equity valuation to the financial impact of sustainable development as drivers of industrial change, sustainability and ESG compliance are accepted as factors that drive equity returns in their own right. What is needed is a single global credible standard, with robust legal definition and supported by a genuinely unbiased rating system that is not only based upon reliable proof of claim but also generally accepted and applicable to practitioners and participants in the SRI industry.
