Ratings agencies are missing crucial aspects of ESG analysis and taking a top-down approach that leads to perverse outcomes such as tobacco companies scoring highly on ESG factors, says Aegon Asset Management. Euan Ker, Sustainable Investment Analyst at Aegon AM, believes ratings agencies employ flawed methodologies that award strong ESG ratings to fundamentally unsustainable companies. “Third-party ESG ratings are just inputs,” he says. “They are not the whole story. ESG screens generally do not consider the sustainability of the company’s products or services, by focusing mostly on how a company operates, rather than what it does.
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