The American Council on Capital Formation, the equally fake front group affiliate of the Main Street Investors Coalition (funded by the same corporate sources, led by the same energy lobbyist) is upset because ESG ratings are “inconsistent.”
We found a system that is fraught with problems, from inconsistent metrics, to ratings which continually fail to account for different regulatory regimes across distinct geographies. Perhaps of greatest concern, we found that each of the four agencies uses their own proprietary methodologies, metrics, weighting, and even definitions of what constitutes ESG. For example, a company may rate well below its peers according to one ratings agency while simultaneously out performing them according to another. This is exactly the case for Bank of America, which was rated “below average” by RepRisk, but “well above average” by Sustainalytics.
Each firm uses its own proprietary and inconsistent metrics! Oh no! How can capitalism survive?
Now is a good time to remind the people who purport to speak for capital formation that the assessment and recommendations of securities analysts are also “inconsistent” and, yes, “subjective” in the selection of indicators and the weight assigned to them. Indeed one can be recommending a buy and one can be recommending a sell! Proxy advisors can disagree as well, one recommending in favor of a proposed business combination or CEO pay plan and another recommending against. We also live in a country where there are “inconsistent” evaluations of restaurants, movies, political candidates, and contestants on “America’s Got Talent.”
Perhaps ACCF should take another look at the father of economics, Adam Smith, for a reminder that this is exactly what markets are for. The fact that so-called capitalists would be “concerned” about the fact that the market has offered competing approaches (while its affiliate, MSIC, whines about the lack of competition in proxy advisory firms) shows that their only goal is to silence critics. This is why they are recommending “meaningful reform” (really? government regulation for a publication no one has to buy?) instead of offering constructive engagement.
What ACCF should do, if it wants to live up to its name and its purported mission, is work on getting its funders to adopt SASB standards for disclosure of financials, to help the still-nascent community of ESG raters to respond even more effectively to the market demand for those insights.