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ESG’s Next Frontier

More than $22 trillion assets are now invested according to ESG principles, according to a McKinsey & Co. study found..  Environmental, social and governance principles form the basis of ESG. A survey by BlackRock last year found that 67% of millennials want investments to reflect their social and environmental values. At the same time, the IMF estimates that criminals launder up to $2 Trillion a year. Unfortunately, existing ESG ratings tools are not preventing investors from investing in the companies that facilitate these crimes.

Compliance is Missing from the Equation


The above plot demonstrates that existing ESG ratings methodologies are not capable of predicting which financial institutions are committing serious offenses. Sigma Ratings compiled data on the amount of fines paid by a number of banks, as well as the average ESG rating of the banks in the months leading up to the fine. 

With a PPMCC of 0.18, it is clear that fines do not correlate with ESG ratings. Many of the worst offenders, such as Danske Bank, have very high ESG ratings. Customers have trusted ESG investors to place their money in responsible institutions. Ensuring . 

Beyond just responsible investments, customers also want to see a return. As seen below, there is a correlation between financial institutions that are caught money laundering and decreasing stock prices. Financial crime is not just ethical concern, but a concern to anyone interested in profit.  

If your institution is pursing ESG investing, its time to utilize Sigma Ratings. There are more than 1000 publicly traded banking institutions in the world. Many of these institutions act with the utmost responsibly and integrity. With Sigma Insight, you can act upon that opportunity.  We urge you to contact Sigma Ratings and work with us to maximize return and responsibility. 

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