Investors are flocking to companies with good environmental, social, and governance (ESG) scores and are threatening to shun companies with poor ones. For many investors, ESG scores are critical to a company’s long-term profitability, not to mention its impact on people and the planet. But there is good reason for skepticism about the trustworthiness of the underlying metrics. For example, there is little correlation among the scores that different ESG ratings services assign to the same companies.
This situation is not inevitable. Despite their huge differences, the practices developed in financial reporting over many decades can contribute to the emerging … Read more