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Sustainability Matters

ESG Ratings Are Bottom-Line Focused, but Have Broader Impacts

Sustainable investing seeks both good returns and broader impact.

Sustainable investing has attracted its share of criticism lately. That's to be expected when a new concept enters the mainstream in any field, especially when it happens suddenly and unexpectedly. Further complicating matters, sustainable investing has not sprung forth as a unified, fully developed investment approach. The many ways that sustainability is being applied to investing have made it difficult to come to a broadly agreed-upon understanding of what sustainable investing means and its scope. As a result, much of the criticism stems from a mismatch between what a critic thinks sustainable investing is or should be about, and how it is actually being practiced, often leading to claims of "greenwashing." A case in point is a recent Bloomberg Businessweek critique of MSCI's environmental, social, and governance ratings.

Provocatively titled The ESG Mirage, the article argues that MSCI's ESG Rating system "flips the very notion of sustainable investing on its head for many investors" because the ratings "don't measure a company's impact on the Earth and society. In fact, they gauge the opposite: the potential impact of the world on the company and its shareholders."