What We Look at Besides an ESG Score

A client once asked which ESG rating we use. The honest answer is: none of them, on their own. Not because the data is worthless — it is genuinely useful at scale — but because a single composite score quietly hides the things that most often determine whether a company is a good long-term holding.

Consider how these scores are made. Different providers use different definitions, weight the components differently, and cover different parts of the market. Two respectable ratings for the same company can disagree outright. That disagreement is not a bug; it is a signal that the underlying question — is this a well-run company that will still be relevant in ten years? — does not collapse into one number.

What a score tends to miss

• Direction of travel. A snapshot tells you where a company is, not which way it is moving. A mediocre score that is improving fast can be a far better holding than a strong score that has stopped improving.
• Materiality. Water use matters enormously for a semiconductor fabricator and hardly at all for a software company. Generic weightings often treat them the same.
• Size bias. Large companies have the staff to report thoroughly. Smaller ones are penalized for not producing the paperwork, which says little about how they operate.
• Product impact. Most frameworks measure how a company operates, not what it sells. A well-run company making a harmful product can score well.
• Lag. Ratings respond to disclosure, and disclosure responds to last year. By the time a score moves, the market has already moved.

What we read instead

Where the data exists, we read the primary sources: the annual report and its footnotes, capital expenditure plans, regulatory filings, and what management says about its own strategy on earnings calls — then whether the spending matches the talk.

Three questions carry most of the weight:

1. Does the company's stated direction match where its capital actually goes?
2. Who benefits from the business, and who absorbs the costs that do not appear on the income statement?
3. If the world changes in an obvious way over the next decade — policy, technology, consumer preference — does this business get stronger or weaker?

None of those are answered by a score, and all of them are answerable with the research already on the desk.

Where scores still earn their keep

They are efficient for screening a universe down to a workable list, and they are useful for spotting something that deserves a closer look. The trouble starts when a ranking gets treated as a conclusion rather than a first pass.

That is how a portfolio ends up holding companies nobody would have chosen if they had read the filings — which is the whole reason we do the reading. If you want to know what your current holdings actually do, that is a good place to start a conversation.