Are ESG scores all smoke and mirrors?
Earlier this week, British American Tobacco published its first half, pre-close, trading update. Whilst sales may be running ahead of expectations, if there was one stand out point in here, it was the fact that the company mentioned its ESG credentials not once but on three separate occasions. Whilst there is certainly evidence to suggest that they are doing great things when it comes to reducing carbon emissions and having inclusive, diverse hiring policies, many people must be left baffled that a company whose core proposition is tobacco sales can take the moral high ground here.
It’s not just BAT saying they’re doing this either. Refinitiv, a company now owned by the London Stock Exchange, runs comprehensive ESG analysis on companies, looking at a whole myriad of factors and coming up with a singular ESG score. Using this metric, BAT tell us that they have the third highest ranking of any FTSE-100 company.
According to the WHO, smoking causes 8 million deaths per year. In an attempt to put that into context, the current reported death toll from COVID-19 is just under 4 million. Whilst BAT may be making progress into the sale of their “non-combustible” or “next generation” products, this surely lays bare a dilemma for investors who are wanting to do the right thing.
If they pick an ESG fund – so one which only invests in companies with high ESG scores – what will they find their money actually supports? Whilst some of the highest rated FTSE-100 companies include well-known pharmaceutical giants, it’s interesting to see that miner Glencore – where a landslide in the Congo less than two years ago killed 43 illegal miners – also makes the grade. Whilst ESG scores certainly serve a purpose, as investors become ever more engaged with meaningful capitalism and want their money to do good, the demand for absolute control of what goes into a portfolio can only continue to grow.