Patchwork of ESG ratings sow investor confusion

The need for simplified rules is becoming increasingly acute as more money flows into the space. About US$68bil (RM284.78bil) has gone into ESG exchange-traded funds alone this year, and US$118bil (RM494.18bil) over the past 12 months, according to data compiled by Bloomberg.

AS trillions of US dollars flow into environmental, social and governance (ESG) strategies, global investors are becoming frustrated with the hodge-podge of standards and ratings designed to guide their allocation decisions and are clamouring for more uniform rules.

Dimensional Fund Advisors, the US giant with about US$637bil (RM2.67 trillion) under management, is telling clients to take ESG ratings with a grain of salt, treating them like buy or sell ratings on a stock. Investors are better off working out their sustainability priorities and picking through raw data instead of relying on the myriad of ratings that have sprung up.