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Goldman Investment Unit Finds ‘Huge Subjectivity’ in ESG Ratings

  • Criticism comes as regulators race to catch up with ESG growth
  • ESG raters, unlike credit ratings providers, are unregulated
Signage for Goldman Sachs Group Inc. is displayed at the One Raffles Link building, which houses one of the Goldman Sachs (Singapore) Pte offices, in Singapore, on Saturday, Dec. 22, 2018. Singapore has expanded a criminal probe into fund flows linked to scandal-plagued 1MDB to include Goldman Sachs Group, which helped raise money for the entity, people with knowledge of the matter said.
Signage for Goldman Sachs Group Inc. is displayed at the One Raffles Link building, which houses one of the Goldman Sachs (Singapore) Pte offices, in Singapore, on Saturday, Dec. 22, 2018. Singapore has expanded a criminal probe into fund flows linked to scandal-plagued 1MDB to include Goldman Sachs Group, which helped raise money for the entity, people with knowledge of the matter said.Photographer: Nicky Loh/Bloomberg

Investors should be aware that ESG ratings lack consistency and tend to be adjusted too slowly to be of much use to fund managers, according to Luke Barrs of Goldman Sachs Asset Management.

Ratings providers often only react after “suddenly something emerges,” and “that’s too late for those investors exposed to that company,” said Barrs, GSAM’s head of fundamental equity client portfolio management in EMEA and Asia ex-Japan, in an interview. There’s also “huge subjectivity that goes into how you can determine the quality of ESG practice,” he said.