As ESG (Environmental, Social, and Governance) principles gain traction in sustainable investment, global regulatory bodies, capital markets, businesses, and the public have all intensified their focus on ESG practices. This has given rise to various ESG rating systems, which play a crucial role in bridging the information gap between investors and corporations. By helping identify ESG risks and opportunities, these ratings are widely recognized as a valuable tool for decision-making in global markets.
The Rise of ESG Ratings
The ERM SustainAbility Institute, part of one of the world’s largest sustainability consulting firms, has conducted extensive research into ESG ratings through its “Rate the Raters” project. Findings from their 2020 and 2022 surveys show:
- ESG ratings are the most frequently used source of information for evaluating corporate ESG performance. Over 65% of investors use ESG ratings at least weekly.
- Top-rated ESG rating agencies include:
- RobecoSAM (now part of S&P Global),
- CDP (Carbon Disclosure Project),
- Sustainalytics (a subsidiary of Morningstar),
- MSCI ESG (Morgan Stanley Capital International).
Active vs. Passive ESG Rating Approaches
ESG ratings can be categorized into two types based on how information is gathered:
- Active Ratings: These involve company participation through surveys and supplemental material submissions. Companies have a window to confirm the accuracy of submitted data.
- Passive Ratings: These rely solely on publicly available information, including:
- Annual reports,
- Sustainability reports,
- Official websites,
- Third-party sources such as government data and reputable media outlets.
Examples of widely used ESG rating systems include:
MSCI ESG Ratings
- Tracks data for over 14,800 issuers and 68,000 stocks and fixed-income securities.
- Covers more than 8,500 companies globally.
- MSCI’s ratings are used to benchmark the sustainability performance of A-share companies included in the MSCI Emerging Markets Index.
Dow Jones Sustainability Index (DJSI)
- The first global sustainability index, established in 1999.
- Now operated by S&P Global, it focuses on top-performing companies across industries.
- Companies must rank within the top 10% of their sector in ESG performance to be included.
Sustainalytics
- Measures ESG risk exposure and management across over 20,000 companies.
- Scores are classified into five categories, ranging from negligible to severe risk.
The Future of ESG in the Jewelry Industry
Global ESG trends are gradually being adopted by traditional industries, including jewelry. Organizations like the AIDI International Smart Diamond Association are aligning global ESG practices with the needs of the jewelry industry to promote sustainable growth.
By incorporating ESG principles, even time-honored sectors like jewelry can transform and thrive in a more responsible and innovative future.