RIYADH: Methods used to evaluate environmental, social and governance (ESG) activities need to be fair in order to gain universal acceptance, financial experts said on the second day of the Future Investment Initiative (FII) forum in Riyadh on Thursday.
ESG criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.
Despite improvements in global ESG scoring and an increased focus on sustainable business models in emerging markets, the lack of universally accepted reporting standards continues to make identifying and tracking strong ESG performers a challenge.
Speaking at a session entitled “Redefining ESG: What innovations will realize inclusive global sustainable development?,” Khalid Abdullah Al-Hussan, CEO of the Saudi Stock Exchange (Tadawul), said: “There are several standards applied worldwide, and a method applied in one country is not necessarily suitable for another. The agencies must consider local criteria while evaluating ESG in emerging markets.”
He added: “We do challenge the rating agencies sometimes,. They need to be fair in their evaluations of ESG.”
On Tadawul’s role, Al-Hussan said that the exchange always acts as an intermediary and makes companies aware of the standards.
Loh Boon Chye, CEO of the Singapore Exchange, echoed Al-Hussan’s opinion regarding rating agencies applying different methods and underscored the need for a universal approach, especially when it comes to local factors.
“We look at different sectors and help bring consensus. This is important to bring investors together,” he said.
Scott Minerd, chairman of investments at Guggenheim Partners, said that emerging markets need to develop policies that will help them progress further in the area of ESG.
