ESG Benchmarking
ESG (Environmental, Social, and Governance) benchmarks are a way to measure the sustainability performance of a company or fund. They use a variety of factors, such as greenhouse gas emissions, water usage, and social impact, to assess how well a company is meeting ESG standards. The Financial Conduct Authority (FCA) published as far back as September 2022 to benchmark administrators, a notice highlighting the risks of poor disclosures for ESG benchmarks. High quality ESG benchmarks are important to support trust in the market for ESG products and the transition to a net zero economy.
ESG benchmarks are becoming increasingly important as investors look for ways to invest in sustainable companies. There are a number of different ESG benchmarks available, and each one has its own strengths and weaknesses. It is important to choose a benchmark that is relevant to your specific investment goals and that you understand the methodology behind it. Having now completed a preliminary review on ESG benchmarks, the FCA published this week a categorisation that “not enough detail on the ESG factors considered in benchmark methodologies for ESG data and ratings products used in benchmarks are accessible, clearly presented and explained to users”. With the market ever increasing in the marketisation of ESG by companies, it is worth getting an understanding of the ESG benchmarks available.
Some of the most popular ESG benchmarks include:
MSCI ESG Research: This benchmark uses a variety of data sources to assess the sustainability performance of companies. It is one of the most widely used ESG benchmarks.
Sustainalytics: This benchmark uses a proprietary methodology to assess the sustainability performance of companies. It is a comprehensive benchmark that covers a wide range of ESG issues.
CDP (Carbon Disclosure Project): This benchmark measures the greenhouse gas emissions of companies. It is one of the most well-known ESG benchmarks.
Dow Jones Sustainability Indices: These indices track the performance of companies that meet certain ESG criteria. They are a good way to invest in sustainable companies.
You can find a copy of the letter from the FCA here: https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-esg-benchmarks-review.pdf
