ESG rating often turns out to be an empty promise

Companies do often not live up to their sustainable hallmark

The ESG rating, the hallmark that indicates that companies are conducting business in a socially responsible way, often appears to be a promise that only exists on paper. While large investors, such as Dutch pension funds, do use it to make responsible investments. This is what PhD student Bram van der Kroft and professor Dennis Bams, both connected to the Open University and Maastricht University, write on Thursday in economics journal ESB.

Van der Kroft and Bams examined the ratings by data companies Refinitiv, MSCI and FTSE of companies over the period from 2003 to 2020. They looked at seven thousand companies worldwide to see the difference between social promises and what was actually done. The conclusion: the label is based only to a very small extent on the actual performance of companies. Also, companies that promise more in the area of social issues do not fulfill these promises, or fulfill them less often. A form of greenwashing, conclude Bams and van der Kroft, which large parties like Heiniken and Shell are most likely guilty of.

Source: ESB / FD
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