Environmental, Social, and Governance (ESG) ratings have clearly caught the market’s attention. In 2021, over $120 billion poured into sustainable investments, more than double the $51 billion logged for 2020. When it comes to climate change, however, ESG ratings are an imperfect vehicle to convey investor-relevant information. Instead, we need to assign companies a stand-alone rating focused on climate risk. Such a climate-specific rating can distill complex information regarding a company’s carbon footprint and climate risk into an intuitive, user-friendly format, while avoiding the flaws that currently mar ESG ratings.
It’s Time to Give Companies Standalone Climate Ratings
Climate change is so urgent we need to separate it from the rest of the sustainability agenda.
May 24, 2022
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Summary.
Investors are increasingly using ESG ratings for their investment decisions. But we need to assign companies a stand-alone rating focused on climate risk that’s distinct from the ESG rating system. Such a climate-specific rating can distill complex information regarding a company’s carbon footprint and climate risk into an intuitive, user-friendly format, while avoiding the flaws that currently mar ESG ratings. The “super-wicked” problem of climate change is so urgent and far reaching that it deserves its own rating, one that eschews the methodological complexities and legal challenges of melding together E and S and G. A climate-specific “C-rating” would empower investors and c-suites alike to make the climate-conscious choices that markets are telling us they want.