Many institutional investors have stringent constraints regarding particular ESG metrics that call for tailored approaches to selecting Exchange-Traded Funds (ETFs). When it comes to personal investors, most find generic ESG scores very helpful in comparing and selecting the right ESG ETFs. But what are ESG scores, who provides them, and which approach is the best? Keep reading to find out.
ESG Scores: Who Provides Them?
Environmental, Social, and Corporate Governance (ESG) investing refers to strategies for investing in organizations with a positive contribution to establishing a better future for the planet and our society.
There are over a hundred data ESG data providers worldwide striving to impose different ESG methodologies that comply with the industry standards. Each ESG data provider follows its metrics to identify the ESG matters. Some source data from questionnaires and stakeholder interviews, while others collect it directly from public sources, like company reports.
Companies like OWL ESG also capture unstructured ESG data sets using cutting-edge artificial intelligence technology, along with conventional methods. After collecting the data, ESG score providers weight and categorize them with proprietary processes, after which final ESG scores are put together.
ESG Scores Can be Different Across Providers
Studies have shown that ESG scores can be tremendously different across ESG data providers. This is because ESG ratings highly depend on the ESG score provider’s opinions, processes, and many other factors. It can be problematic for personal investors when they are basing their selection on the ESG scores that may or may not be efficient. There have been numerous cases where investors were victims of greenwashing.
Why Experts Recommend a Consensus-Based Approach
Investors often don’t have the skills or time to study the details of various methodologies used by ESG score providers to tell whether they should avoid buying ESG products that are deemed controversial. An excellent way is to shelve differences while seeking common ground.
Most experts believe a consensus-based approach is most helpful for investors relying on ESG scores for ETF selection. The approach converges the average opinions of ESG experts and the divergence of those opinions about an organization.
Using the consensus approach benefits investors as they have access to industry insights rather than basing their selection on the scope of a single ESG scorer’s philosophy, which sometimes might differ from the rest of the industry.
The OWL ESG Difference
At OWL ESG, we believe long-term profitability significantly depends on sustainability. We’re a blend of individuals with extensive experience in quantitative asset management, ESG, data science, machine learning, artificial intelligence, and computer programming.
We’re an ESG measuring service that uses state-of-the-art ESG rating tools to guide you on what best meets your specific needs. Our team is passionate about discovering and utilizing powerful approaches to synthesizing data and improving its usability. We apply data insights to improve investment performance while making this world a better place.
Our core offerings include principle-based screening, cover ratings, raw data sets, ESG consensus services, fund-level analyses, SFDR data solutions, TCFD analytics services, and more. Partner with us to get customized solutions for your ESG data, standards, and regulatory reporting needs.
Asset Owners, Investment Product Issuers, Corporates, Asset Managers, Fintech Platforms, and Wealth/Investment Advisors and Brokerage Firms can connect with us for more information.