Towards a More Reliable ESG (Environmental, Social, and Governance) Assessment Framework: Lessons from the PRI Initiative

Abstract

In recent years, green investments and ESG (Environmental, Social, and Governance) principles have gradually become the focus of the industry's attention. However, the future of ESG still has some uncertainties, and the diversity of ESG data and metrics has led to challenges in comparing ESG performance across companies, making it complex to determine the relevance and substantive ESG issues related to financial performance. This paper explores the evolution and challenges of ESG investments and proposes principles for ESG rating agencies to follow, originating from the PRI (Principles for Responsible Investment). This study recommends that rating agencies adopt a comprehensive assessment approach, considering a company's environmental, social, and governance performance and engaging with companies to obtain more comprehensive and reliable data. Additionally, rating agencies should maintain transparency, disclosing precise methods and data sources to enhance the credibility of ESG ratings. Most importantly, rating agencies must continuously improve their rating methodologies to reflect changes in the market and ESG practices, encouraging other rating agencies to adopt more consistent ESG assessment methods for a more sustainable investment practice and sustainable development in the financial industry.