Clean energy firms’ ESG rating may be ‘downplayed’: report
This calls for an improved ESG methodology.
Clean energy companies may be scoring lower than the others in terms of their environment, social, and governance (ESG) initiatives due to the lack of agreed objective and unified standards.
In a report, the Institute for Energy Economics and Financial Analysis (IEEFA) raised the need to improve how the utility sector is evaluated.
IEEFA’s Hazel James Ilango said the sustainability efforts of energy firms transitioning to cleaner energy sources may be downplayed due to the subjective nature of ESG ratings, industry peer assessment, and ESG data disclosure and methodology.
Ilango noted that in its current form, coal companies may be able to get a similar rating, if not higher than, renewable energy firms.
Case in point is fossil fuel firm Origin Energy in Australia garnering a more positive rating from Refinitiv and Sustainalytics, compared to RE firm AC Energy.
“Neither the lack of clean energy transition by Origin Energy nor the renewable energy procurement of AC energy is distinctly reflected in their respective ESG and environmental scores,” Ilango said.
“The E, S and G pillars cover a wide and varying array of factors. The subsequent aggregation of these analyses into one single metric will not precisely reflect the actual ESG performance of a company’s operation,” Ilango said.
On this note, Ilango said a mandatory reporting for each ESG pillar may be in order to reflect the company’s ESG performance.