As a trustee, you don’t want your members’ money invested in companies that mistreat workers, pay executives excessive salaries, or harm the environment — because these practices can increase risks and reduce long-term returns.
But how do you know how a company really behaves and what impact it has on workers, communities, and the planet?
This is where ESG scores or ratings come in. Think of them like a school report card for companies. The score shows how well (or poorly) a company is doing on:
- E: Environmental issues – e.g. pollution, climate change, use of natural resources.
- S: Social issues – e.g. worker treatment, health and safety, diversity, impact on communities.
- G: Governance issues – e.g. fair pay for executives, avoiding corruption, good decision-making.
Investment managers could use these scores to compare companies when deciding where to invest. A higher ESG score suggests a company is more responsible, while a low score could mean higher risks.
Watch this short explainer video to see how ESG scores and ratings work:
Here are some examples of ESG rating agencies:
Climate Action 100+
CSRHub
EthosESG
LSEG ESG Scores
Sustainalytics
Large investors – like retirement funds and insurance companies – who invest in hundreds of different companies can make use of ESG platforms. These platforms pull together data from many sources to give an overall picture of how all the companies in a portfolio are performing on ESG.
Examples of South African financial institutions that have developed ESG tools and platforms:
Alexander Forbes Investments
Futuregrowth Asset Management
Old Mutual Investment Group
RMB (Rand Merchant Bank)
Sanlam Investments
In South Africa, the FSCA requires retirement funds to consider ESG factors under Regulation 28 of the Pension Funds Act. This means ESG data isn’t just “nice to have” – it’s becoming part of how funds are expected to invest.
Source
SG Analytics: What is an ESG score and how is it calculated?
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