Quilter Investors' Marisol Hernandez: Trusting ESG ratings data to fix a problematic system
Marisol Hernandez (pictured), head of responsible investment at Quilter Investors
The speed of this growth and the differences in the methodologies of these ratings can be problematic, and as such the UK government is taking steps to bring this sector into the regulatory regime. This is a positive first step, but with the consultation recently closing, we now await what the final rules for the industry will look like.
From the consultation, there is a clear emphasis that regulation is going to focus on the transparency of the methodology used by these ratings firms, rather than creating a uniform approach.
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This is a good move, as each firm will have their own specialisms and it is important to allow this nascent industry to develop and find a harmonised approach that will be beneficial in the long-term.
But transparency is only one element in all of this. This regulation needs to put accountability on an industry that has so far lacked it, and bring it more in line with the rest of the asset management community.
To date different methodologies have produced diverging results and as such puts into question how much can we trust the data being presented.
While it is all well and good having it spelled out in black and white how a methodology has been constructed, we also need to know what the limitations of the data are, particularly when proxy data are being used.
For example, data on smaller companies can be lacking and as such it should be made clear that a rating for a particular company may not consider the full picture.
It is this lack of clarity that can also feed down into the fund level too.
For example, an investment fund might achieve an A
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