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TrackInsight: ESG Investing | Understanding ESG Ratings

03/03/2021 | 08:25am EDT

Simon Mott, caught up with Conser’s Managing Partner, Angela de Wolff to find out how investors can use ratings as they are building sustainable portfolios.

Billions of dollars of investments are flowing into ESG ETFs – ETFs that claim to help make the world a better place by investing in companies that are leaders in environmental, social and governance practices. But not all ESG ETFs are built alike – in fact the huge variety of different methodologies poses a challenge to investors who want to make sure their money is having the positive impact they expect.

One way to measure the “ESG-ness” of an ETF is through a rating and Conser provides a consensus-based approach to ESG ratings that brings together the best thinking of rating agencies, sustainability experts and institutional investors. Simon Mott, TrackInsight’s CMO caught up with Conser’s Managing Partner, Angela de Wolff to find out how investors can use ratings when they are building a sustainable portfolio.

Here are some highlights. For the full conversation, please click here.

SM: We have more than 550 ESG ETFs listed around the world. With that comes a paradox of choice for ESG investors- the more products there are on the shelf, the harder it is to choose between them. How can investors use ESG ratings to help them?

ADW: Last year (2020) we had some many new funds come to market and each manager has their own interpretation of ESG, so investors can easily get lost and they need more simplicity clarity and comparability. ESG ratings can help them by providing a consistent framework to assess ESG funds that may follow very different approaches.

SM: It’s hard for investors when everyone has a different definition of ESG – is this a product of greenwashing or a due to how the industry has developed?

ADW: ESG encompasses a lot of different criteria. The final determination of whether a company is sustainable or not depends on both quantitative factors like CO2 emissions or the number of women on their board, but it also includes qualitative factors like the ESG strategic vision of the corporation and its internal process related to sustainability. Also, look at financial analysts, if you give two analysts the same data they can come up with different conclusions, so even if they are using the same information, they may not agree. The same goes for interpreting ESG data.

You also have asset managers who need to differentiate from the competition, so they create new products with new twists that adds to the complexity. At Conser we see the diversity as a richness and we need to build trust between asset managers and investors – ratings and ESG verification have an important part to play in that.

SM: There’s a lot of different ESG ratings, but Conser has a different approach – help us understand what the ‘consensus based’ methodology is.

ADW: The consensus-based approach is a multi-source methodology that reflects the various opinions of experts in the market. To deal with the complexity of ratings, we need to use the collective intelligence of [hundreds of experts across] the market instead of imposing one standard from the top down. It’s like a jury who can provide a consensual final judgement. Thanks to this measurement, we can offer a tool that can be applied to any investment- not just ETFs.

SM: Why have one experts’ opinion when you can have hundreds! Thank you Angela. For more information, and to see which ESG ETFs have a high rating based on Conser’s consensus methodology, please visit TrackInsight’s ESG Observatory.

© www.trackinsight.com 2021
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