The most vital letter in ESG ratings is not what you might think

Source: Drbouz / Getty Images

By David Callaway, Callaway Climate Insights

(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)

CHAPEL HILL, N.C. (Callaway Climate Insights) — Climate-friendly investors need to pay more attention to the “G” in “ESG.”

I’m referring to the “Governance” dimension of socially responsible investing that goes by the acronym ESG. The other two dimensions, of course, are Environmental and Social. Most climate-focused investors focus only on the “E” and ignore the “G” dimension altogether.

That may be a big mistake, according to a recent study into which companies have made the most progress over the years in reducing their emissions of greenhouse gases (GHGs). The study’s authors found that an increased “G” rating was correlated with a reduced growth rate of GHG emissions, on average. In contrast, there was no detectable statistical correlation between changes in companies’ “E” ratings and changes in GHG emission growth rates. . . .

To read this column, all our insights, news and in-depth interviews, please subscribe and support our great climate finance journalism.

Callaway Climate Insights Newsletter