As environmental, social, and governance (ESG) investing continues to grow in popularity, investors have increasingly sought to develop their own scoring methodologies to evaluate ESG risk.
While external ESG scores provide a broad perspective on an industry or company’s performance on a number of sensitive issues, they often suffer from a lack of granularity. For example, external ESG scores may fail to account for material differences between firms within the same industry.
In addition, some investors may find that external ESG scores are based on subjective judgments about the relative importance of different types of ESG risks for a given firm or industry.
This white paper provides an overview of the path towards developing an in-house scoring methodology that addresses these shortcomings.