‘Opaque & unreliable’ ESG scores demand new | Australian Markets

Current proprietary ESG scoring fashions lack precision and stay excessively advanced, inviting important greenwashing dangers, argues Scientific Beta, with the main index supplier reinforcing its award-winning methodology because the gold normal for assessing funds’ ESG bona fides.

The Climate Transition Risk Beta (CTR Beta) was earlier this month named the industry’s Best ESG Index Provider on the ESG Investing Awards 2025 in London.

The award, the firm stated, was a clear recognition of its scientific, evidence-based strategy to ESG and climate investment modelling, “built on facts instead of subjective opinions”.

The model, which makes use of publicly obtainable uncooked knowledge inputs, has been touted by the firm as a “transparent and academically validated methodology”.

“It overcomes the shortcomings of backward-looking carbon emissions data, by extracting relevant information from market prices, which represent a sort of consensus between a multitude of investors, on which companies are deemed to be hurt or to benefit from future shifts in climate transition risks.”

Investors are being misled

Traditional ESG scoring strategies, many of which lack a exact, constant and evidence-based strategy, Scientific Beta argues, are failing to ship constant assessments. As a outcome, many traders could also be misled by the real sustainability credentials of ESG investment merchandise.

“Scientific Beta has repeatedly warned regulators in Europe and Australia about the greenwashing risks of using proprietary ESG scores to meet investors’ legitimate sustainability goals,” it stated.

Citing the firm’s own analysis, Scientific Beta deputy CEO and index director Daniel Aguet warned that present proprietary fashions stay “largely unreliable”, with ESG scores diverging considerably from one supplier to the subsequent.

“Hence, they reflect mostly opinions rather than objective facts”, he stated.

What is more, whereas it’s tempting to affiliate a fund’s promised ESG credentials with sturdy financial outperformance, the researcher has warned traders to not conflate these two metrics.

In-house analysis, corroborated by educational findings, exhibits that ESG knowledge isn’t a dependable source of risk-adjusted financial outperformance, Scientific Beta wrote.

“Hence the target of a sustainable investment strategy shouldn’t be an illusory quest for financial alpha.

“This implies that traders’ sustainability-related objectives are best dealt with with out mixing up the financial and sustainability levers within the construction of investment portfolios.

“For investors who wish to meet sustainability goals or constraints, this requires addressing the three dimensions of investments, namely sustainability, financial performance and financial risks, at distinct steps of the portfolio construction, using distinct data inputs.”

Scientific Beta, a subsidiary of SGX Group, is a Singapore-based developer of reference indices for good beta and sustainability methods.