She says: “Taken together, both ratings give a clearer picture of where its impact lies and can help with capital allocation.”
There are also technical reasons why current ESG ratings don’t fully capture a company’s level of sustainability.
Therefore, she feels that “current quantitative ESG ratings are designed in a way that frequently exposes them to being misunderstood or misapplied, and one system may rate a firm entirely differently to another”.
Regulation and consumer choice
While there is plenty of scope for metric analysis improvement and greater accuracy to aid genuine reporting, there is also a lot to be said for where we are with regulation and consumer pressure, and the limits around these at the moment.
Dunbar believes that, through a combination of regulatory pressure and consumer pressure, a company’s behaviours are going to be revealed through disclosure and social media, which empowers consumers to make their own choices, to buy goods and services or not.
However, consumer stress under the cost of living crisis is currently a major inhibitor in the challenge for ESG to flourish in near future.
Dunbar feels that ultimately this is about all ESG pieces of the jigsaw fitting together. “Governments have to prioritise the social elements, before the environmental can be taken care of effectively,” he proposes.
The challenge is, “are consumers going to make (a sustainable) choice? If you are confronted with a cost of living crisis, or if you live in a part of the world that is not as wealthy, can you afford to pay a little more for more sustainably sourced food?”
Global responsibility
But without social change, there will be less environmental change.
Dunbar says: “The environmental part [seems] the most consequential and pressing, but we need to contemplate that if the social (elements) aren’t in place for people to care about the environment, then it is unlikely that their behaviours will moderate in a way that we can successfully impact environmental change.”
Dunbar advocates for taking more global responsibility.
He says: “If you look at COP26, I think on balance it probably was successful in that there are commitments being made that have put it front of mind, and companies can drive it more internationally than governments can.”
But he says one of the failings of COP26 was that for emerging economies, the social building blocks would have to be in place before the environmental challenges can be tackled.
He warns that if people are worrying about (where they will live) and how they will look after their kids, then the carbon-led building out of an economy that people have in the west will be limited.
