Investing with ‘green’ ratings? It’s a gray area
Investors betting trillions on ethically-appealing stocks may not be getting all they expect.
Buying into companies based on environmental, social and governance factors, has become a hot trend on Wall Street, spawning a new industry that sells investors company ratings based on those factors and funds dedicated to rated companies. However, some investors and funds may rely too much on the scores of one rating firm, said Dan Hanson, a portfolio manager at Jarislowsky Fraser Global Investment Management.
“The scores are in some cases being used in a way they are not really designed for,” Hanson said. “It’s problematic to bolt them on to an investment process.”
There are no set criteria for who is bad and who is good and so-called ESG ratings vary widely, meaning investors may be less protected than they think, for example, from a scandal over labor practices or board pay.