Puzzling through Asia’s ESG data

ESG is a popular buzzword these days. Known as Environmental, Social and Governance (ESG), it’s a criteria that investors are increasingly using to evaluate companies. For example, a company that has policies for climate action, good labour rights, and a well-defined corporate governance system is more likely to have a good ESG rating.

But these ratings are like jigsaw puzzles, where different pieces complete the picture — and these puzzles can vary for each country because there isn’t a single, standardised international ratings system. Just the “S” within “ESG” can refer to different factors like gender, race, nationality, age, sexual orientation, and employment status — but depending on the region’s socio-political environments, the importance of every factor varies across countries and sectors. This is especially true for Asia given how diverse the region is.

If you are interested in ESG investments, don’t trust ESG ratings blindly; you need to understand the metrics used. Unfortunately, not all ESG rating providers provide transparency in how they do this, which can impact the accuracy and reliability of the data that you might be considering.

But this doesn’t mean that investors should disregard ESG ratings totally. More effort has been placed to address shortcomings and data deficiencies, including having more consistent ratings systems and new regulations for more accountability among the ESG rating providers.

Before you dive right into investing based on ESG ratings, make sure you understand the factors and data involved. Ensuring it’s relevant and reliable is the least you can do to protect your own portfolio.

To learn more about how to interpret ESG data, click here to read our full article “Navigating Asia’s ESG data puzzle”.