Boston Trust Walden cautioned investors to not rely on sustainability ratings to gauge portfolio company performance on ESG issues in view of the ratings' methodology flaws. For illustrative purposes, Walden notes that its portfolio small caps (US Small Cap strategy) would have garnered a "D" grade on gender equality from As You Sow's Invest Your Values "Gender Equality Funds" online tool - in line with the "D" or "F" grades ascribed to all of As You Sow's rated small caps, which are evaluated against 3,500 global companies across size categories notwithstanding the fact that smaller companies typically lag larger companies on board & management gender balance and numerous other practices commonly rated by these services.
Walden notes: "Like many ratings methodologies, the underlying data is not transparent, making it difficult to understand how one grade versus another translates into real world differences regarding a company’s gender equality record." In lieu of relying on ratings, the investor touts its active ownership approach that encompasses targeted engagement and proxy voting to effect desired change.
This is not the first time a well-known institutional investor has justifiably publicly cautioned against reliance on ESG ratings. See our prior report: "Hermes to Investors: Don't Rely on ESG Ratings." This post first appeared in the weekly Society Alert!