# Not everyone is jumping on the ESG bandwagon  Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2020-11-22 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: Unlocking Impactful Sustainable Investing: The Key to ESG Ratings Meta Description: Learn why sustainability ratings may not be the best tool for retail investors looking to make a positive impact with their investments. Dive into the URL: https://financedigest.com/not-everyone-is-jumping-on-the-esg-bandwagonhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/untitled-design-2020-11-23t015253-1736838708808-compressed.jpg) _By **Josh Gregory,** CEO and Founder of [Sugi](https://sugi.earth/)_ 2020 has undoubtedly shone a spotlight on sustainability. Investment into green tech and cleantech startups has already reached an all-time high. Between the climate crisis and the pandemic, interest in doing better for the planet has skyrocketed in all aspects of our lives, including in finance. Sustainable – or [green – finance](https://www.financedigest.com/is-2022-the-year-green-finance-incorporates-climate-risk.html "Is 2022 the year green finance incorporates climate risk?") is having somewhat of a moment of late. And it’s easy to see why. There is a wealth of evidence suggesting that companies with good environmental, social and governance – or [ESG – practices](https://www.financedigest.com/preventing-poor-esg-practices-from-costing-you-investors.html "Preventing poor ESG practices from costing you investors") will outperform their counterparts without. However, not everyone is jumping on the ESG bandwagon. While asset managers and institutional investors are indeed clued up on the benefits of [sustainable investing](https://www.financedigest.com/closing-the-sustainable-investment-gap.html "Closing the sustainable investment gap"), retail investors are lagging behind. But it’s not a [lack of interest that’s stopping](https://www.financedigest.com/carlsbergs-poland-unit-could-stop-production-lack-of-co2-threatens-food-industry.html "Carlsberg’s Poland unit could stop production; lack of CO2 threatens food industry") them. Research by BlackRock shows that over 75% of people want to engage in [impact investing](https://www.financedigest.com/ngunu-tiny-discusses-how-covid-19-has-changed-the-future-of-impact-investment.html "N’Gunu Tiny discusses how COVID-19 has changed the future of impact investment"), but only a small proportion of investors actually follow through with it. One of the main reasons is a lack of clear information. Currently, sustainability – or [ESG – ratings](https://www.financedigest.com/financial-think-tank-calls-for-regulated-esg-ratings-in-britain.html "Financial think-tank calls for regulated ESG ratings in Britain") are the main source of information available for retail investors. However, these ratings are not designed with [retail investors](https://www.financedigest.com/analysis-european-retailers-are-on-investors-naughty-lists-this-christmas.html "Analysis-European retailers are on investors’ naughty lists this Christmas") in mind. Sustainability ratings are designed for asset managers and institutional investors who typically have access to other sophisticated portfolio dashboards and data when [building](https://www.financedigest.com/building-a-portfolio-for-retirement.html "Building A Portfolio For Retirement") portfolios. They are not designed for those who research their investments, say, on their laptops themselves. [Sustainability ratings are created](https://www.financedigest.com/growing-exports-of-non-traditional-jamaican-crops-creating-sustained-opportunities-for-ackee-market-sale.html "Growing Exports Of Non-traditional Jamaican Crops Creating Sustained Opportunities For Ackee Market Sale") using a complex methodology. Put simply, a [sustainability rating scores a fund](https://www.financedigest.com/global-citizen-seeks-up-to-1-billion-for-six-sustainable-impact-funds.html "Global Citizen seeks up to billion for six sustainable ‘Impact’ funds") out of five. It’s [created by averaging the ESG scores of the underlying companies in the fund and comparing the fund with others in the same industry](https://www.financedigest.com/growth-of-mineral-processing-and-mining-industrie-is-creating-demand-for-rotary-trommel-market.html "Growth Of Mineral Processing And Mining Industrie Is Creating Demand For Rotary Trommel Market") group. A different set of [factors is used depending on the industry](https://www.financedigest.com/automotive-soft-trim-interior-materials-market-size-key-players-growth-factors-regions-and-applications-industry-forecast-by-2026.html "Automotive Soft Trim Interior Materials Market Size, Key Players, Growth Factors, Regions and Applications, Industry Forecast by 2026"), meaning there is no way to compare ratings across industries. On top of this, sustainability ratings combine the three pillars of “E”, “S” and “G” with a bespoke [set of weighting](https://www.financedigest.com/weight-loss-machine-market-set-to-surge-significantly-during-2021-2031-tmr.html "Weight loss Machine Market Set to Surge Significantly During 2021-2031 | TMR") for each factor, determined by the agency that creates the rating. This in itself is a highly subjective methodology. It effectively means an [investment may score well for social and governance](https://www.financedigest.com/adnami-to-receive-six-figure-sum-of-investment-from-danish-government-in-recognition-of-its-pioneering-technology-and-strategy.html "Adnami to receive six-figure sum of investment from Danish government in recognition of its pioneering technology and strategy") factors, for example, but poorly on environment – but still receive a good rating. While some funds show separate scores for ‘E’, ‘S’ and ‘G’, delving into details on what they mean is nigh on impossible. Finally, and perhaps most importantly for retail investors, sustainability [ratings are a financial risk](https://www.financedigest.com/ecb-must-be-prudent-with-rates-hikes-as-recession-risk-rises-panetta.html "ECB must be prudent with rates hikes as recession risk rises: Panetta") metric. This means that they look at a company in the context of ESG factors and analyse how it is likely to perform as a result. For example, an ESG score won’t help someone understand a company’s [carbon footprint](https://www.financedigest.com/coca-cola-digital-ad-campaigns-use-seenthis-streaming-technology-to-avoid-excessive-carbon-footprint.html "Coca-Cola Digital Ad Campaigns Use SeenThis Streaming Technology to Avoid Excessive Carbon Footprint"), water usage or waste. Rather it will indicate how far these factors are likely to affect the company’s financial performance compared with other stocks in its [sector](https://www.financedigest.com/how-embedded-insurance-can-drive-growth-and-value-for-the-insurance-and-finance-sectors.html "How Embedded Insurance Can Drive Growth and Value for the Insurance and Finance Sectors"). While this is obviously important, most retail [investors want to invest](https://www.financedigest.com/unregulated-investment-schemes-remain-a-threat-to-investors.html "Unregulated Investment Schemes Remain a Threat to Investors") for the good of the planet. They therefore want to know how a company is performing against their own environmental or ethical issues instead. Ratings aside, sustainable investing is a complex beast. Generally speaking, it’s full of confusing language, jargon and a general lack of transparency. Retail investors are also concerned about greenwashing – and rightly so, given the muddy waters. While some companies publish annual impact reports, unless [investors have time](https://www.financedigest.com/credit-suisse-executives-reassure-investors-after-cds-spike-financial-times-reports.html "Credit Suisse executives reassure investors after CDS spike, Financial Times reports") to trawl through them individually, it can be hard to differentiate between real impact and marketing spin. This results in a lack of understanding and confidence among retail investors to engage in [green investing](https://www.financedigest.com/britain-launches-plan-to-boost-green-investments-in-emerging-markets.html "Britain launches plan to boost green investments in emerging markets"). This is why we’ve launched Sugi. Sugi is a completely new way for retail investors to engage with green investing. For the first time, retail investors can access personalised carbon [data about the stocks](https://www.financedigest.com/yields-rise-stocks-nudge-higher-after-u-s-jobs-data.html "Yields rise, stocks nudge higher after U.S. jobs data"), funds and ETFs they hold and compare them with industry averages and similar investments. Users link their investment portfolios through [Open Finance](https://www.financedigest.com/delivering-on-the-potential-of-open-finance.html "Delivering on the potential of open finance") technology, which enables us to personalise the experience and information. Behind the scenes, the raw impact data is sourced from S&P Trucost, a world [leader](https://www.financedigest.com/queen-elizabeths-death-reaction-from-world-leaders.html "Queen Elizabeth’s death: Reaction from world leaders") in environmental data and analysis with world’s largest impact data set and over 100 environmental key performance indicators. Most importantly, Sugi is designed specifically for retail investors. Through Sugi, retail investors have access to relevant, objective and easy-to-understand green information, creating many more ways to engage with green investing. We believe in the importance of [sustainable investing for everyone – not only so retail investors can align their investments with their values if they wish, but to help create a sustainable future](https://www.financedigest.com/sustainable-finance-the-wave-of-the-future.html "Sustainable Finance: The Wave of the Future"). With the right information, retail [investors can take control](https://www.financedigest.com/cryptoverse-bitcoin-investors-take-control.html "Cryptoverse: Bitcoin investors take control") of their impact, as well as their finances, and make a real difference. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---