Chronic. At the start, as often in finance, there is a good idea. More and more investors want their money to go to ethical businesses. This is particularly true among younger generations who do not want to grow tobacco, weapons or pollution.
From this will, often sincere, was born a classification: environmental, social and governance (ESG) criteria are attributed to companies. Gradually, a veritable industry has flourished on this idea, declining scholarly and ever more sophisticated studies on the practices of companies, with many acronyms, scores and comparative tables.
Up to 1,000 criteria
The MSCI World Index (formerly Morgan Stanley Capital International), specializing in the creation of stock market indices, rates the ESG of companies from “CCC” to “AAA”, on a model reminiscent of rating agencies. BlackRock, the world’s largest investment firm, prefers to assign scores between 0 and 40. ISS, an advisory firm, boasts of analyzing over 1,000 criteria in its methodology.
The emptiness of these rankings appeared with the Orpea nursing home scandal. The group is accused of shameful practices in The Gravediggers, the investigative book by Victor Castanet (Fayard, 400 pages, 22.90 euros). It’s about elderly people left in their excrement because diapers are rationed, defective medical beds, bedsores the size of a fist, in the name of unbridled financial profitability.
However, in its last annual report, published before the scandal, the company boasted of its excellent ESG ratings. ISS gave it a “C” while 75% of the nursing home sector did less well. Gaïa Rating gave it 69 points, while the sector average was 52. How did Orpea pull off this miracle? The group explained “to work for transparency by regularly responding to questionnaires from extra-financial rating agencies”. He also organized site visits for ESG analysts. It is clear that they have completely missed the problem.
Not all ESG rating providers use the same criteria or methods
A good ESG score is not just a marketing advantage. It also helps to attract investors. Thanks to its good rating, Orpea found itself present in a whole series of so-called virtuous stock market indices: FTSE4Good, STOXX France 90 ESG-X, etc. These indices are now very influential: an investor who wants to be “responsible” can give instructions to put his money in them, without necessarily knowing in detail each of the companies that make it up.
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