{"id":3711,"date":"2021-04-28T10:39:03","date_gmt":"2021-04-28T09:39:03","guid":{"rendered":"https:\/\/estably.com\/a-look-behind-the-scenes-of-the-sustainability-rating\/"},"modified":"2022-04-04T15:26:08","modified_gmt":"2022-04-04T14:26:08","slug":"esg-at-any-cost","status":"publish","type":"post","link":"https:\/\/estably.com\/en\/esg-at-any-cost\/","title":{"rendered":"A look behind the scenes of the sustainability rating"},"content":{"rendered":"\t\t
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ESG AT ANY COST?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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A look behind the scenes of the sustainability rating<\/h1>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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28. April 2021 | Sustainability<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tMore and more investors want their investments to take sustainability into account. For this purpose, the ESG rating (Environmental, Social, Governance) has been developed. Its goal is to reflect the extent to which companies consider certain guidelines in different areas of sustainability. \u00a0<\/em>\r\n\r\nIn theory, an applaudable approach \u2013 as a responsible investor, however, you should take a closer look at the mechanisms behind the ratings. You will see: a high ESG score does not necessarily correspond to your very own idea of sustainability.\u00a0<\/em>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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AAA for an oil producer, AA for an arms dealer<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThe ESG score is intended to paint a comprehensive picture of sustainability. According to the ESG concept, both the considerate use of natural resources and the treatment of employees, partners and customers are important aspects of sustainability.\r\n\r\nIn practice, rating agencies are facing\u00a0tough challenges<\/strong>. How can an airline be compared with a healthcare group in terms of sustainability, for example?\r\n\r\nAgencies get around this problem by comparing companies within the same industries. However, this can give the impression that a company is\u00a0good for the environment<\/strong>\u00a0when in reality it is only the most sustainable company\u00a0in its own industry.<\/strong>\r\n\r\nThe\u00a0oil producer<\/strong>\u00a0Galp Energia is given the top rating \u201cAAA\u201d by the rating agency MSCI, the\u00a0weapons manufacturer<\/strong>\u00a0BAE Systems is rated \u201cAA\u201d and the\u00a0betting provider<\/strong>\u00a0William Hill gets an \u201cA\u201d, for example. The healthcare group Fresenius, a company that is fully aligned with the UN\u2019s Sustainable Development Goals, is less sustainable according to MSCI, with a \u201cBBB\u201d rating.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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(Source: own illustration)<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Rating agencies disagree<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tResearchers from MIT Sloan Business School have found that ESG scores for the same company can differ significantly depending on the rating agency. Ratings from different agencies\u00a0correlate by an average of only 61%<\/strong>. By comparison, the credit rating agencies Standard & Poors and Moodys agree on 99% of their ratings.\r\n\r\nHow do these discrepancies arise? Agencies consider different factors in their ratings and measure or weight them according to their own perception:\r\n\r\nExamples:<\/strong>\r\n\r\n\u2013 Agency A attaches importance to compliance with human rights, while Agency B gives greater weight to the reduction of greenhouse gases.<\/em>\r\n\r\n\u2013 Agency X measures the working conditions in a company on the basis of the dismissal rate, while Agency Y measures working conditions by the number of employee complaints against the company.<\/em>\r\n\r\nBecause of the divergent scores, it is difficult for investors to\u00a0identify clear sustainability winners or losers.<\/strong> This makes it unlikely that stock prices reflect the ESG score. Questions also arise for decision-makers within companies. What actions need to be taken to improve the ESG Score? To which agency\u2019s rating should efforts be aligned? Is there a need for action at all?\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Increased risk of \u201cgreenwashing<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tDue to the\u00a0strong increase in interest<\/strong>\u00a0in \u201csustainable\u201d investments and the fact that the ESG market\u00a0has yet to be regulated,<\/strong>\u00a0danger of \u201cgreenwashing\u201d is increasing.\r\n\r\nThis refers to measures taken by a company that\u00a0make people believe<\/strong>\u00a0it is concerned about the environment \u2013 when in reality the opposite is true. This \u201cstrategy\u201d is so widespread that \u201cgreenwash\u201d was included in the Oxford English Dictionary back in 2010.\r\n\r\nLast year alone, more than 80 existing funds were converted to sustainable investment strategies. \u201cGiven the high number of conversions in a relatively short period of time, it is reasonable to suspect that\u00a0not every fund is taking a genuine ESG approach<\/strong>, or, to put it more directly: There is a suspicion that greenwashing is at play,\u201d says Morningstar Germany Editor-in-Chief Ali Masarwah.\r\n\r\nThe European Securities and Markets Authority (ESMA) wants to make the previously unregulated market for ESG ratings more transparent by introducing guidelines. The main aim is to prevent greenwashing in the future, but also to create a universally accepted definition of ratings.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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(Source: \u201cSix Sins of Greenwashing\u201d by TerraChoice)<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Small companies have a harder time<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\r\n\r\nA survey by the German Berenberg Bank has shown that smaller companies, in particular, are often unable to comply<\/strong>\u00a0with the extensive ESG requirements.\r\n\r\nThese small companies often\u00a0do not publish enough sustainability information<\/strong>. As a result, less data is available to the rating agencies, which makes it harder for them to accurately rate these small companies. Due to the investment guidelines of many institutional investors, these companies would be\u00a0excluded<\/strong>\u00a0as potential investments.\r\n\r\n<\/div>\r\n<\/section>\r\n
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Our ideas on sustainability<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tIt is of great concern to us not to invest in companies that violate our values and moral standards. In our view, however, a high ESG score in its current form is\u00a0not yet a reliable indicator<\/strong>\u00a0for the very complex topic of sustainability. We therefore do not offer a portfolio that meets the so-called ESG criteria. However, we pay indirect attention to some of these criteria when selecting our companies.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Estably is the first digital asset management company from Liechtenstein to offer first-class wealth management from \u20ac 20,000 through a mix of technology and human investment expertise. Thanks to the portfolio managers' many years of experience in the field of value investing, above-average returns are targeted. This is intended to make professional asset management, previously available exclusively to large investors, accessible to everyone - conveniently, transparently, and profitably.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Did you like the article? Share it!<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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You might still like these posts<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Finance Blog<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\"ESG-Rating-Estably\"<\/div><\/a>\n\t\t\t\t
Sustainability<\/div>\n\t\t\t\t
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\n\t\t\t\n\t\t\t\tA look behind the scenes of the sustainability rating\t\t\t<\/a>\n\t\t<\/h3>\n\t\t\t\t
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ESG AT ANY COST? A look behind the scenes of the sustainability rating 28. April 2021 | Sustainability Share on facebook Share on twitter Share<\/p>\n\t\t<\/div>\n\t\t\n\t\t\n\t\t\tRead more \t\t<\/a>\n\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t\t\n\t\t\t28. April 2021\t\t<\/span>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/article>\n\t\t\t\t
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\"Taschenuhr<\/div><\/a>\n\t\t\t\t
Stock markets<\/div>\n\t\t\t\t
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\n\t\t\t\n\t\t\t\tGood is not good enough for us\t\t\t<\/a>\n\t\t<\/h3>\n\t\t\t\t
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You achieve a good return with an index – but good is not good enough for us. We want more than the MSCI World return.<\/p>\n\t\t<\/div>\n\t\t\n\t\t\n\t\t\tRead more \t\t<\/a>\n\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t\t\n\t\t\t29. March 2019\t\t<\/span>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/article>\n\t\t\t\t
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\"Vaduz<\/div><\/a>\n\t\t\t\t
Asset protection<\/div>\n\t\t\t\t
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\n\t\t\t\n\t\t\t\tLIGHT Foundation: The multi-generation model for your capital protection (guest article by Markus Miller)\t\t\t<\/a>\n\t\t<\/h3>\n\t\t\t\t
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Insurance policies from the Principality of Liechtenstein offer you foundation-like advantages and are already ideally suited for professional structuring models for contract sums from \u20ac50,000.<\/p>\n\t\t<\/div>\n\t\t\n\t\t\n\t\t\tRead more \t\t<\/a>\n\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t\t\n\t\t\t20. September 2023\t\t<\/span>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/article>\n\t\t\t\t<\/div>\n\t\t\n\t\t\t\t
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