Analysis of ESG ratings trigger accusations of “greenwashing”.
Shell got a high ESG rating from MSCI / REUTERS
Research conducted for the Evening Standard today raised serious concerns over “greenwash” claims made by City fund managers to persuade the public to invest with them.
Investments in companies and funds considered to have strong environmental, social and governance (ESG) credentials have rocketed in the past two years as people seek ethical homes for their savings.
Some funds do their own research into potential investments, but others claiming to be ethically-based use external agencies to rate the companies they back.
Research for the Evening Standard conducted by SCM Direct showed some give relatively high scores for companies in sectors like mining, airlines, gambling, oil and gas and alcohol.
Diageo, the spirits giant behind Smirnoff and Johnnie Walker, is ranked “AAA” by the MSCI ratings group and “Low Risk” by Sustainalytics.
Oil giant Shell is declared an “A” by MSCI, as is mining giant Rio Tinto, famed for recently blowing up a sacred aboriginal site in Australia.
IAG, the British Airways owner, is ranked only “medium risk” by Sustainalytics despite airlines being blamed for high levels of CO2 emissions.
Flutter, the Paddy Power-to-Betfair gambling group, is rated AA by the MSCI group and only “medium risk” by Sustainalytics.
Even cigarettes giants BAT and Imperial Brands only merit “medium risk” ratings. At MSCI, Imps is even given an A rating, although BAT scores a lower BBB.
SCM Direct said: “Greenwashing is rife, with many funds sold to the public on ESG scores that are illusory in our view. Is this the next mis-selling scandal?”
In its methodology description, MSCI explains that it looks at a range of items when coming up with an overall score, ranging from CO2 footprint to diversity on the board.
It says it “assesses thousands of data points across 37 ESG key issues” including carbon emissions, water stress, labour management, health and safety, boardroom pay and business ethics.
Presumably due to the dominance of its CEO and major shareholder, Tesla, which has arguably done more for the cause of green transport than any other company, is given a “High Risk” score by Sustainalytics.
SCM said it rates those multiple metrics against peers in the same sector, meaning a tobacco company could get a good score because it is greener than its peers.
Sustainalytics scores are absolute, meaning it tends to give higher risk marks than MSCI. BP and Shell are both rated as High Risk by the company.
Its literature says: “This means that a bank, for example, can be directly compared with an oil company or any other type of company.”
ESG funds attracted almost £1 billion a month of new money last year, according to figures from the Investment Association as investors seek more ethical homes for their savings.
The surging demand has led to a flurry of new responsible investment fund launches and arguably driven up the value of ethically-run businesses.
|Company||Sector||Sustainalytics ESG rating||MSCI ESG rating|
|BP||oil and gas||High Risk||BBB|
|Shell||oil and gas||High Risk||A|
|Anglo American||mining||Medium Risk||A|
|Rio Tinto||mining||High Risk||A|
|BAE Systems||defence||High Risk||AA|
|Imperial Brands||tobacco||Medium Risk||A|
|Tesla||electric cars||High Risk||A|
View: More news