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Date: 2024-03-29 Page is: DBtxt001.php txt00012559 |
Metrics and Markets |
Burgess COMMENTARY |
Abstract: Institutional investors are becoming ever more aware of the potential risks and opportunities associated with environmental, social and governance (ESG) factors. From natural resource scarcity to changing governance standards, from supply chain and labor management concerns to evolving regulatory landscapes, it has become increasingly important for socially responsible investment (SRI) professionals to understand the ESG profile behind the assets they are managing. Hence, the access to relevant, consistent, comparable, balanced and reliable ESG information has become a prerequisite for asset managers to take the right investment decisions. The financial services market has responded to this need by producing specific ESG ratings, rankings and indices. These services serve asset managers of SRI portfolios with the analytical information they would need to assess the ESG performance, risks, and opportunities of assets-under-management (AUM). The objective of this research paper is to examine the relevance of ESG ratings for SRI decisions from a market perspective and to identify the dynamics that affect the development of the ESG ratings industry in the future. Research Interests: Corporate Social Responsibility, Sustainable Development, Corporate Sustainability, Triple Bottom Line, CSR Reporting in Banking Sector, and 24 more Academia.edu Search... HOMEANALYTICS SESSIONS UPLOAD 99+Peter Burgess The Significance of ESG Ratings for Socially Responsible Investment Decisions - An Examination from a Market Perspective Michael Laermann UPLOADED BY Michael Laermann VIEWS 306 INFO less DOWNLOADED Abstract: Institutional investors are becoming ever more aware of the potential risks and opportunities associated with environmental, social and governance (ESG) factors. From natural resource scarcity to changing governance standards, from supply chain and labor management concerns to evolving regulatory landscapes, it has become increasingly important for socially responsible investment (SRI) professionals to understand the ESG profile behind the assets they are managing. Hence, the access to relevant, consistent, comparable, balanced and reliable ESG information has become a prerequisite for asset managers to take the right investment decisions. The financial services market has responded to this need by producing specific ESG ratings, rankings and indices. These services serve asset managers of SRI portfolios with the analytical information they would need to assess the ESG performance, risks, and opportunities of assets-under-management (AUM). The objective of this research paper is to examine the relevance of ESG ratings for SRI decisions from a market perspective and to identify the dynamics that affect the development of the ESG ratings industry in the future. Research Interests: Corporate Social Responsibility, Sustainable Development, Corporate Sustainability, Triple Bottom Line, CSR Reporting in Banking Sector, and 24 more 1.$,, e*perts globally for this very p!rpose. 2o&ever/ even tho!gh CR)s traitionally have been consiering material ESG factors as part of their holistic assessment approach/ they foc!s on creit ris% rather than on ESG opport!nities. D!e to the @iss!er paysA pricing moel/ &hich gives !sers free access to rating res!lts/ CR)s c!rrently o not ta%e stoc% in complementing iss!ers profiles &ith more comprehensive ESG information. Material ESG ris%s are incorporatein the overall rating analysis an th!s only reflect a etail of an iss!ers ESG profile from a creitrating perspective. Conse3!ently/ CR)s o not provie stan4alone ESG assessments or an holistic overvie& of an entitys long4term ESG potential. Moreover/ the final rating score oes not necessarily reflect the impact of ESG consierations beca!se even in instances &here ESG ris%s have material implications/ the creit impact may be mitigate by other factors li%e financial strength. /MooyGs* p- 7 Despite the incorporation of ESG factors in their rating methoologies an their potential to evolve into an integrate rating provier/ the leaing CR)s at this stage o not isclose any specific ESG4relate information in the rating profiles p!blishe on their &ebsites. The research/ analysis an rating of ESG4specific information remains the e*pertise an core b!siness of traitional ESG rating firms/ &ho nee to aapt their services to s!pport asset managers in their manate to con!ct a more active SRI approach li%e ESG integration or engagement.$. Concl!sionsThis research paper ientifie some of the factors that affect the significance an mar%et potential of ESG ratings. It o!tline a n!mber of factors that impee ESG ratings from eveloping f!ll mar%et potential/ confining them to be a non4bining inicator rather than a conventional reso!rce for SRI portfolio management. 9ne of the reasons is the proliferation of the ESG rating mar%et an techni3!es/ &hich is partly !e to the absence of common stanars an the strategic interest of ESG rating proviers in conserving proprietary rating methoologies to protect a competitive ege. Despite consierable progress of self4reg!lating programs to promote common frame&or%s an stanars for ESG reporting 0GRI/ IIRC/ acco!nting 0S)S?/ research an rating 0)RIST)/ GISR or SRI 0HRI/ ?S IS9 ##### #, / these initiatives are of vol!ntary nat!re/ &hich leaves asset #,?S IS9 #####:#,,+ is an international 3!ality stanar for personal financial planners service by - ## managers free to ecie on ho& to e*ec!te their SRI strategies. D!e to the confiential nat!re of investment strategies it remains iffic!lt to assess to &hich e*tent asset managers implement ESG factors in their act!al b!siness practice to meet c!stomers manate.)nother critical parameter is the valiity an ass!rance of ESG information. Even tho!gh the vol!me of p!blicly available ESG ata is constantly rising/ the 3!ality of the isclose information is epening on the iss!er s!ch as a company 4 an the valiation by an assessor/ s!ch as an ESG research firm. D!e to a limitation of legally bining r!les/ ESG isclos!re oes not necessarily feat!re materiality aspects or preictive ata/ an th!s bears the ris% of being incomplete/ inconsistent an iffic!lt to compare bet&een ifferent in!stries/ mar%ets/ an rating schemes. To compensate for this eficit/ it &o!l re3!ire an active investigation approach/ &hich ESG research proviers/ analysts an asset managers !e to constraints of reso!rces can only perform to a limite e*tent.)t the same time/ the significance of the s!stainability information mar%et is favorably impacte by the SRI mar%ets o&n moment!m an the tren to&ars ESG integration an active ste&ar4ship in partic!lar. ;hile larger financial services companies !s!ally have s!fficient reso!rces to perform proper ESG research an analysis/ the act!al challenge is more for asset managers at smaller investment firms/ as they nee to evelop s%ills to b!il an manage SRI portfolios moreeffectively to meet their manate. ESG rating scores for them constit!te a complementary reso!rce for stoc%4pic%ing e*ercises an portfolio management. (rom this perspective/ the eman for ESG rating services is rather riven by proper mar%et ynamics than by e*ternal reg!lation. This is inicate by an ongoing mar%et consoliation/ the creation of strategic alliances/ an the la!nch of ESG4specific pro!cts by establishe financial players li%e stoc%4e*changes/ ine* proviers/ m!t!al f!ns/ an CR)s. If the latter &ere to isclose comprehensive information of material ESG criteria in a more etaile &ay/ asset managers &o!l have a simple b!t reliable rating reso!rce to ra& on &hen managing SRI portfolios. 2o&ever/ as CR)s foc!s on material ris% factors only/ asset managers nee to perform proper research or ra& on e*ternal service proviers to have these insights available to perform an active ste&arship approach. This manate necessitates irect company engagement/ &hich represents a ma6or eneavor for analysts/ asset manager an e*ternal ESG rating proviersali%e. Stanars International Lt - #$ E*ternal ESG rating agencies try to meet his challenge by b!iling capacity thro!gh mergers/ ac3!isitions an partnerships. Recent evelopments inicate that the increasing eman from SRI professionals for transparent/ reliable an material ESG ran%ing information is li%ely to be accommoate by inherent mar%et ynamics flan%e by self4reg!lation. The latter &ill be essential to ass!re common 3!ality stanars in regars to the transparency an reliability of ran%ings. Stanarise ESG scores in combination &ith research an 3!ality stanars &o!l finally ma%e s!stainability ata s!fficiently comparable/ consistent/ an reliable for SRI ecision ma%ing/ &hich 4 !ltimately 4 might lea to a s!bstantial e*pansion of the ESG ratings mar%et &ell beyon its c!rrent level. )t longer4term/ ESG rating scores &ill only be accepte by the mar%et if the level of valiity antransparency of the !nerlying ata an applie rating methoology are ae3!ate to meet the stanars of fi!ciary !ty. )s long as they are not f!lly transparent/ comparable/ an base on material/ in!stry4specific/ an reliable ata/ ESG ratings &ill remain of limite relevance for SRI ecision4ma%ing/ as they cannot provie asset managers the reliable reso!rce they &o!l nee to meet investors eman for more active SRI management. - # )nne*List of References?ailey/ Jonathan X lempner/ ?ryce an Yoffer/ Josh 0#,1/ S!staining s!stainability: ;hat instit!tional investors sho!l o ne*t on ESG/ Mcinsey/ &ebsite: http:KK&&&.mc%insey.comKin!striesKprivate4e3!ity4an4principal4investorsKo!r4insightsKs!staining4s!stainability4&hat4instit!tional4investors4sho!l4o4ne*t4on4esg ?lac%Roc% 0#,1/ ?lac%Roc% b!ils s!stainable pro!ct range &ith fi*e income ET( 0press release/ 11K,1K#,1/ https:KK&&&.blac%roc%.comKcorporateKen4gbKne&sroomKpress4releasesKarticleKcorporate4oneKpress4releasesKblac%roc%4b!ils4s!stainable4pro!ct4range4&ith4fi*e4income4etfZG? ?lo&fiel/ Michael an M!rray/ )lan 0#,11/ Corporate Responsibility 0secon eition/ 9*for 5niversity Hress?oiral/ 9livier 0#,1/ S!stainability Reports as Sim!lacra 4 ) Co!nter4)cco!nt of ) an )U GRI Reports/ )cco!nting/ )!iting X )cco!ntability Jo!rnal/ Ool. #/ 8o. =/ p. 1,=1/ http:KK&&&.emeralinsight.comKoiKpfpl!sK1,.11,'K)))J4,4#,1#4,,BB'?SR 0#,1#/ Trens in ESG Integration in Investments 4 S!mmary of the Latest * an Recommenations to )ttract Long4Term InvestorsCeres 0#,1+/ Mooys Incorporate ESG into Ratings/ http:KK&&&.ceres.orgKinvestor4net&or%Kresol!tionsKmooys4incorporate4esg4into4ratings C() Instit!te 0#,1+/ Environmental/ Social an Governance Iss!es in Investing ) G!ie for Investment HrofessionalsC() Instit!te 0#,1+/ ESG Iss!es in Investing: Investors Deb!n% the Myths C?I 4 Climate ?ons Initiative 0#,1/ &ebsite: http:KK&&&.climatebons.netKDeloitte 0#,1/ Disclos!re of Long4Term ?!siness Oal!e/ Deloitte 5niversity HressDeloitte 0#,1/ S!stainability Disclos!re: Getting )hea of the C!rve Eccles/ Robert G. an Wo!mans/ Tim 0#,1+/ In this corner/ DJSI an in this corner/ materiality/ Materialitytrac%er &ebsite: http:KK&&&.materialitytrac%er.netK#,1+K,=Kin4this4corner46si4an4in4this4corner4materiality4ingK / accesse on 1K,K#,1Empirical Research Hartners 0#,1/ Stoc% Selection: Research an Res!lts 4 Investment Ieas from the Ivory To&er 0iss!e: May 1B/ #,1 / http:KK&&&.empirical4research.comK&p4contentK!ploasK#,1K,+KStoc%4Selection4Investment4Ieas4from4the4Ivory4To&er4May41B4#,1.pf - #+ E!ropean Commission 4 DG Environment 0E8O.(.1KET5K#,1K,,,#/ Reso!rce Efficiency an (i!ciary D!ties of Investors 4 (inal Report E!rosif 0#,1/ E!ropean SRI St!y(riee/ G!nnar K ?!sch/ Timo K ?assen/ )le*aner 0#,1+/ ESG an (inancial Herformance: )ggregate Evience from More Than #,,, Empirical St!ies/ Jo!rnal of S!stainable (inance X Investment/ Ool. +/ 8o. / http:KK&&&.tanfonline.comKoiKf!llK1,.1,',K#,$,=B+.#,1+.111'B1= GES an 9e%om Research 0#,1/ oe%om research an GES intensify partnership 0press release/ #,K#,1+/ http:KKoe%om4research.comKhomepageKgermanK1+1,#%om4GES4 partnershipZE8.pf GISR &ebsite/ http:KKrates!stainability.orgKh!bKine*.phpKsearchKreport4in4graph Green?i7 0#,1/ State of Green ?!siness #,1GRI 0#,1/ The E*ternal )ss!rance of S!stainability Reporting/ https:KK&&&.globalreporting.orgKreso!rcelibraryKGRI4)ss!rance.pf GRI 0#,1/ Defining ;hat Matters 4 Do companies an investors agree on &hat is material[GSI) 0#,1/ Global S!stainable Investment Revie& #,12ale/ Jon 0#,1/ The )ppeal of S!stainable Investing/ Morningstar Maga7ine 0iss!e: Jan!ary #,12elmann/ Michael 0#,11/ S!stainability: 9pport!nity or 9pport!nity Cost[ )pplying ESG (actors to a Hortfolio Does 8ot 8egatively Impact Herformance an May Enhance It/ RCM S!stainability ;hite Haper/ RCM 0)llian7 Gro!p2o&er/ Mi%e 0#,1+/ Co!l s!stainability s!rvey fatig!e la!nch a billion in!stry[/ Green?i7 &ebsite/ https:KK&&&.greenbi7.comKarticleKgisr4program4c!ts4core4esg4research4an4ratings IIRC 0#,1/ Integrate Reporting -IR Creating Oal!e Oal!e to the ?oarInvestopeia ;ebsite/ http:KK&&&.investopeia.comKtermsKeKenvironmental4social4an4governance4esg4criteria.asp]i*77$&8hb%5f# / accesse on 1K,K#,1Jac%ie Oanerbr!g 0#,1/ )ligning Wo!r Investments ;ith Wo!r Oal!es/ 5S Tr!st Capital )cc!men 0iss!e #=/ #,1/ http:KK&&&.!str!st.comKp!blishK!stKcapitalac!menKs!mmer#,1Kinsightsinvestments4val!es.html han/ Mo7affar K Serafeim/ George an Woon/ )aron 0#,1+/ Corporate S!stainability: (irst Evience on Materiality/ The )cco!nting Revie&/ 2arvar ?!siness School/ iss!e: March B/ #,1+/ http:KKhbs&%.hbs.e!KitemKcorporate4s!stainability4first4evience4on4materiality - # Lemos Stein/ Maria 0#,1/ The ?attle to Grae ESG Investments 2eats 5p/ The ;all Street Jo!rnal/ 11K,#,1/ http:KKblogs.&s6.comKris%ancomplianceK#,1K,!p Lyenberg/ Steve 0#,1+/ Hortfolios an Systemic (rame&or% Integration: To&ars a Theory an Hractice 0E*pos!re raftMain/ 8ic% an 2espenheie/ Eric 0#,1#/ Integrate Reporting The ?ig Hict!re/ Deloitte Revie&/ Iss!e 1,Montier/ James 0#,1/ The ;orls D!mbest Iea/ GM9 LLCMooie/ )lison 0#,1+/ Creit rating agencies are miscalc!lating ris%s of climate change/ report fins/ The G!arian/ #+K,K#,1+ online iss!e: http:KK&&&.theg!arian.comKs!stainable4 b!sinessK#,1+K6!nK#+Kcreit4rating4agencies4ris%s4climate4change4report4finance Mooys 0#,1+/ Mooys )pproach to )ssessing ESG Ris%s in Ratings an Research/ Sector In4Depth ;hite Haper/ Mooys Investors Service/ ,'K,BK#,1+Mooney/ )ttracta 0#,1/ Morningstar ethical rating co!l cost f!ns billions/ (inancial Times/ 1=K,1K#,1/ http:KK&&&.ft.comKintlKcmsKsK,Ke'acae4bb'$411e+4bf=e4'a$#1.html 8ovethic Research 0#,1/ 9vervie& of ESG Rating )genciesoe%om research )G 0#,1/ The Impact of SRI9RSE 4 9bservatoire s!r la Responsibilit^ Soci^tale es Entreprises 0#,1#/ G!ie to S!stainability )nalysis 9rganisations 05patesHet%ov/ Miroslav an ;il%ins/ Michael 0#,1+/ Climate change: testing the resilience of corporates> creit&orthiness to nat!ral catastrophes/ The Treas!rers ;i%i/ https:KK&i%i.treas!rers.orgK&i%iKClimateZchange:ZtestingZtheZresilienceZofZcorporatesE#',BBZcreit&orthinessZtoZnat!ralZcatastrophes / accesse on 1K,K#,1HRI 0#,1/ Report on Hrogress #,1 HRI 0#,1+/ Report on Hrogress #,1+ HRI 0#,1/ Creit ratings agencies embrace more systematic consieration of ESG 0press release/ #K,+K#,1/ https:KK&&&.!npri.orgKpress4releasesKcreit4ratings4agencies4embrace4more4 systematic4consieration4of4esg HRI 0#,1/ Statement for ESG in creit ratings/ https:KK&&&.!npri.orgKo&nloaZreportK1$=B H&C/ S!stainability Disclos!res: Is Wo!r Company Meeting Investor E*pectations/ In The Loop/ Iss!e: J!ly #,1+/ http:KK&&&.p&c.comK!sKenKcfoirectKp!blicationsKin4the4loopKs!stainability4isclos!re4g!iance4sasb.html Rogers/ Jean 0#,1/ + Mar%et Hroblems the SEC Can 2elp Solve Thro!gh Reg!lation S4/ http:KK&&&.h!ffingtonpost.comK6ean4rogersKfive4mar%et4problems4the4ZbZBB+B$$'.html - 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Help Center Academia © 2017 S)S? 0#,1/ Concept Release on ?!siness an (inancial Disclos!re Re3!ire by Reg!lation S4/ https:KK&&&.sec.govKcommentsKs=4,41Ks=,14#+.pf SXH Do& Jones Inices an RobecoS)M 0#,1/ SXH Do& Jones Inices an RobecoS)M the (irst to La!nch Inices 5sing ESG as a Smart ?eta (actor 0press release/ 1BK,K#,1/ http:KK&&&.s!stainability4inices.comKimagesK1,1B4press4release4sp4esg4inices4en4vef.pf Searcy/ Cory 0#,1/ Its all Relative The (atal (la& in Corporate S!stainability Ratings/ S!stainable ?rans &ebsite: http:KK&&&.s!stainablebrans.comKne&sZanZvie&sKne&ZmetricsKcoryZsearcyKitsZallZrelativeZfatalZfla& ZcorporateZs!stainabilityZratings SICM 4 S!stainable Insight Capital Management 0#,1/ ;ho are the ESG Rating )gencies/ S!stainable Insights/ (ebr!ary #,1 iss!eSICM 4 S!stainable Insight Capital Management 0#,1/ ESG (!n ratings la!nche/ S!stainable4Trens/ 14#,1 iss!eSRI Services 0#,1/ )viser SRI ()s X Lin%s/ SRI Services &ebsite: http:KK&&&.sriservices.co.!%Kavising4on4sriKfa3s/ accesse on 1K,K#,1 S!stain)bility 0#,1,/ Rate the Raters Hhase 1 4 Loo% ?ac% an C!rrent StateS!stain)bility 0#,1,/ Rate the Raters Hhase $ 5ncovering ?est HracticesS!stain)bility 0#,1/ Rate the Raters Hhase + !estionnaire for Raters: CSR 2!b/ S!stainable Stoc% E*changes 0SSE Initiative 0#,1+/ Moel G!iance on Reporting ESG Information to Investors ) Ool!ntary Tool for Stoc% E*changes to G!ie Iss!ers58 Global Compact/ )ccent!re S!stainability Services 0#,1,/ ) 8e& Era of S!stainability/ https:KK&&&.!nglobalcompact.orgKocsKne&sZeventsK'.1K58GCZ)ccent!reZCE9ZSt!yZ#,1,.pf 58 HRI 0#,1/ Hrinciples for Responsible Investment ?roch!re58EH (inance Initiative/ 58 HRI 0#,1+/ Report on Hrogress: (i*e Income5nite 8ations Global Compact 058GC/ 58 HRI/ et al. 0#,1+/ (i!ciary D!ty in the #1st Cent!ry 5nr!h/ Gregory K iron/ Davi K r!sch&it7/ 8ina K Reeves/ Martin K R!bel/ 2olger K Meyer 7!m(ele/ )le*aner 0#,1/ Investing for a S!stainable (!t!re/ MIT Sloan Management Revie&/ iss!e: May #,1/ http:KKsloanrevie&.mit.e!Kpro6ectsKinvesting4for4a4s!stainable4f!t!re 5S Sif (o!nation 0#,1/ Impact of S!stainable an Responsible Investment5S SI( ;ebsite/ http:KK&&&.!ssif.orgKmisperceptions / accesse on 1K,K#,1- #' 5S SI( ;ebsite/ http:KK&&&.!ssif.orgKsribasics / accesse on 1K,K#,1;einreb Gro!p 0#,1/ State of the Hrofession Report #,1 ;hite/ )llen L. 0#,1#/ Reefining Oal!e: The (!t!re of Corporate S!stainability Ratings/ Corporate Governance (or!m/ iss!e #B;hite/ )llen L. 0#,1+/ ;hy S!stainability Ratings Matter/ MIT Sloan Management Revie&/ ;ebsite accesse on 1K,K#,1/ http:KKsloanrevie&.mit.e!KarticleK&hy4s!stainability4ratings4matterK ;illar/ ?ob 0#,1/ $ reasons investors &ill care abo!t ESG in #,1+/ Green?i7 online article/ https:KK&&&.greenbi7.comKblogK#,1,K#+Kesg4investor4initiatives - #B List of intervie&eesThe a!thor &o!l li%e to ac%no&lege the follo&ing persons for their val!able time an inp!t to this research paper: )llen ;hite/ (o!ner/ GISR/ 5.S.).)rchie ?eeching/ Manager (i*e Income/ 58 HRI/ 5..?ernhar Sch&ager/ 2ea of S!stainability 9ffice an Member of GISR Consorti!m/ Robert ?osch Gmb2/ GermanyCary rosins%y/ ESG )visor/ ?ro&n 5niversity/ 5.S.).Cecilia Repins%i/ Hrogram Manager/ Mistra (inancial Systems/ S&eenCory Searcy/ )ssociate Hrofessor/ 5niversity of Ryerson/ CanaaDieter 8ie&ierra/ Director Corporate Comm!nications/ oe%om Research/ GermanyDomini3!e ?lanc/ 2ea of Research/ 8ovethic/ (rance(iona Reynols/ Managing Director/ 58 HRI/ 5..2enry Shilling/ Senior Oice Hresient ESG/ Mooys Investors Service/ 5.S.).2er&ig Heeters/ Hresient/ (or!m ET2I?EL an )rista/ ?elgi!matarina 2ammar/ Senior ESG )nalyst/ 8orea/ S&eenristen S!llivan/ Hartner/ Deloitte )visory/ 5.S.).Lars Moratis/ (o!ner/ Impact)caemy/ The 8etherlansMeg Ooorhes/ Director of Research/ 5S SI(/ 5.S.).Hetter ?r!nnberg/ )nalyst/ 8orea/ S&eenStephen 2ine/ Dep!ty CE9/ OigeoEiris/ 5.. |
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The text being discussed is available at https://www.academia.edu/27673760/The_Significance_of_ESG_Ratings_for_Socially_Responsible_Investment_Decisions_-_An_Examination_from_a_Market_Perspective and |
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