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Companies often fail to live up to sustainability ratings

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Published: 23 August 2022

ESG ratings of companies do not always reflect accurately their environmental and social performance, according to new research

Research: Shell’s ESG ratings have improved despite controversy surrounding sustainability practices | Laurens van Putten, ANP

In brief

  • ESG assessments of companies appear to be based on promises on paper, not actual actions.
  • Companies that promise more often do nothing or less with those promises.
  • This is apparent from research published on Thursday in the journal for economists ESB.
  • Investors use these sustainable scores to invest in socially responsible ways.

The ESG rating, the hallmark that indicates that companies undertake corporate social responsibility, often turns out to be a promise that only exists on paper. While large investors, such as Dutch pension funds, use it to invest responsibly.

The quality mark is only based to a very small extent on the actual performance of companies. This is what PhD student Bram van der Kroft and professor Dennis Bams, both affiliated with the Open University and Maastricht University, write in the journal for economists ESB on Thursday, based on their own research.

ESG (environmental, social and governance) is a hot issue in the boardrooms of listed companies. The European Union is working on regulations that force financial institutions and investors to explain more accurately the impact of their investments on the world. Institutional investors, such as pension funds, more often want to invest in a sustainable way. But how?

The sustainability reports of companies are not standardised. Investors therefore use the sustainability ratings, or ESG ratings, that data collectors such as Refinitiv, MSCI and FTSE put on companies. For example, Pensioenfonds Zorg en Welzijn applies MSCI scores. In the Netherlands, three million former employees receive their pension from this fund.


Van der Kroft and Bams examined the assessments of companies by data companies Refinitiv, MSCI and FTSE over the period from 2003 to 2020. They looked at the difference between the social promises and the actual action taken at 7,000 companies worldwide. In 2020, the companies surveyed, including a large part of the Dutch listed companies, represented 85% of the total global market value.

‘Our conclusion is that the promises made by companies, on average, have not yet come true,’ says Van der Kroft to the FD. An exception are the promises about CO₂ emissions, where companies do improve their performance. However, these emissions are one of the 150 aspects that the researchers checked.

Unkept promises

Van der Kroft and Bams also see that companies that promise more in the field of social issues did not fulfil those promises or they did so less often. A form of greenwashing, they conclude.

For example, they question Heineken’s assessment. Female sales staff at a brewery in Cambodia worked under poor conditions from 2006 to 2008, lobby and research agency Somo wrote. During their work they regularly encountered sexual harassment and violence. In addition, they received only half the wages needed to make ends meet, even though they worked on a full-time basis.

‘From the perspective of corporate social responsibility, these practices can only be seen as negative’, write Van der Kroft and Bams. Still, Heineken got an increasingly better score during that period, as the company drew up policies to solve the problems. That policy weighed more heavily in the quality mark of data collector Refinitiv than the actual situation at the Cambodian workplace.

A similar effect is visible at Shell. Refinitiv data shows that since 2005 the oil company has faced controversy every year regarding sustainability and often faces environmental fines. Yet, Refinitiv’s score for Shell rose to its near-highest level during the study period.

This article originally appeared in FD, the Dutch business daily, on 18 August 2022

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