The Rise in ESG Ratings: What’s the Score?

Vogue Business

When Michael Beutler joined Kering’s sustainability operations team as its director in 2011, the fashion conglomerate, then known as PPR, fielded at most four investor requests a year about its environmental practices.

Nearly a decade later, the Gucci and Saint Laurent owner receives at least four of these questionnaires a month. “If not double that,” Beutler says. “They take a long time to respond to — and they evolve and change each year.”

Environmental, social and corporate governance, or ESG for short, has exploded from a niche concern to table stakes. Between 2011 and 2019, the proportion of S&P 500 firms reporting on their ESG performance surged from less than 20 per cent to 90 per cent, with the contents of those reports “dramatically expanding over time”, according to the Governance & Accountability Institute, a New York consultancy.

The shift is indicative of the growing view that companies must meet consumer demand for sustainability or else sacrifice profitability. For fashion, an industry near-synonymous with profligacy, pollution, labour abuses and climate impact, the pressure for brands to pivot to better-for-the-planet practices — and one-up their competition — has never been more acute.

To fill this need, hundreds of rating and ranking platforms, including the Dow Jones Sustainability Indices (DJSI), EcoVadis, Sustainalytics and MSCI, have sprung up to help asset managers, institutional investors, would-be employees, consumers and other stakeholders assess, measure and benchmark a company’s ESG performance. But while the ratings are designed to distill various sustainability achievements — or lack thereof — into easy-to-understand scores that elevate one company’s efforts above another, critics say they can further muddle our understanding of corporate social responsibility and even impede meaningful progress.

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