Everyone claims ESG credentials. How can I check?

Sustainable Pensions - Research

When you’ve been writing about or following a topic for any length of time, you run the risk of events overtaking you, making past research or observations obsolete. The same can be said of Environmental, Social and Governance (ESG) matters.

I can think of many occasions when I’ve lauded moves by some big-name companies to improve their corporate governance or their green credentials, only to discover a year or so later that the company was not quite so ‘ethical’ or ‘green’.

Think of clothing retailers who pledge to reduce packaging but who fail to pay workers overseas a decent living wage, or businesses signing up to pledges on net zero carbon emissions while destroying millions of unused, unsold products every year.

ESG metrics were implemented to assess how well a company meets its environmental, societal and governance responsibilities. Teams of analysts check and cross-check these to assess which businesses will make the grade for their ESG fund portfolios.

But the trouble is, a company could score so highly on environmental credentials that issues over poor governance are not examined thoroughly. This obviously creates an investment risk when those issues are made public and the business is held to account.

While ESG-led investment strategies have boomed in recent years, the truth is, there is so much information available that it is easy for investors to get side-tracked.

In 2020, fund ratings provider Morningstar warned there was a “minefield” of ratings and due diligence to navigate. This is why you must use the internet wisely.

Search for both positive and negative press. While it is useful to read a company’s sustainability or corporate social responsibility reports, also look for unbiased research from analysts and managers whose job it is to interrogate every element of the ESG metric.

Examine the ESG ratings given by fund ratings providers – are they just parroting what the company’s reports have said, or have they carried out proper analysis?

Many investment specialists have called for an ‘ESG investment standard’ to improve transparency. While one, universal, green standard is some way off, discussing your goals, values and vision with a qualified professional adviser can help put a set of metrics in place to act as guard rails to keep your investments on track – financially and ethically.

This way, you can avoid being distracted by clever PR campaigns and focus instead on investing in the right ESG portfolio for you.


Simoney Kyriakou is a financial journalist