How Wall Street Is Gaming ESG Scores

“Even though investors and managers communicate extensively about the use of climate data to construct their portfolios, these data points represent at most 12% of the determinants of portfolio stock weights on average,” Goltz said.

Funds need to go beyond displaying the “green scores” of their portfolios and instead invest in stocks “in a way that provides incentives for companies to act on climate change.

To promote true alignment with climate objectives, rather than avoiding utilities altogether as a way of enhancing a green score, fund managers should put pressure on those industries to invest in technologies that can drastically reduce greenhouse gases. Read more

ESG Chronicle Team