ESG ratings: solution or starting point? - AllianceBernstein

Environmental, social and governance (ESG) ratings are a popular way to search for companies that meet specific criteria in a responsible investing agenda.

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Creating a scoring system can help bring rigor and precision to investment analysis for asset managers across the industry. But the apparent authority of third-party ESG scores may mask their limitations.

AllianceBernstein believe third-party ESG services (such as climate data and portfolio-level ESG calculation tools) can be used as part of an investing toolkit, knowing that even as providers continue to refine their modeling and ingest more data, their ratings remain imperfect and provide only a partial solution. In their view, there’s no substitute for integrating consideration of ESG factors into fundamental security analysis. Rather than outsource ESG assessments to third-party providers, investors and analysts must conduct in-depth, hands-on research and engage actively with issuers. That approach enables investors to achieve real insight into a business and its activities, and to get a proper understanding of its future prospects as well as its past.

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