Investment money is pouring into stocks that get good grades on environment, social and governance (ESG) issues, but determining how high- and low-rated companies perform is nearly impossible due to inconsistencies in the way they are rated, according to The Wall Street Journal.
Depending on the time period and the provider of ESG data (Refinitiv; MSCI, Inc.; and Sustainalytics were analyzed), top-ranked ESG stocks either beat the market or lag behind it, according to The Journal’s reporting. Low-ranked stocks, generally seen as polluting more and treat their workers less well, can outperform top-ranked ESG stocks and the market overall.
Company ESG rankings vary widely depending on the data provider, and which companies win or lose is inconsistent. Rating are getting more scrutiny now because the Securities and Exchange Commission is weighing regulations around disclosure on areas such as exposure to climate change and carbon emissions.
The three rankings firms focus their data on longer time periods. Research has shown that companies with better ESG scores tend to generate better earnings during a five- to seven-year period than those with lower ESG scores, according to MSCI, inc.
Nearly $17 trillion in U.S. assets were held in 2020 by investors apply ESG criteria to their portfolios, according to the Forum for Sustainable and Responsible Investment.
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