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Turlyka Anhelina

IBC 2020 Fall

AWP Group S1

Synthesis

In this two articles which were read by me the first one “The Challenges of rating ESG Perfomance”,

Simon MacMahon (HBR, September-October 2020) tells us about the usefulness of author’s work, about the

research of Sustainanalythics company as a whole and what it can do for the investment market in the future,

while the second article “Why ESG ratings matter and how companies use them”, Carlota Esguevillas (site of

company Simply Sustainable, date of writing is not mentioned, 2020) present about how and what benefits ESG

ratings can bring to companies, how they can be used to attract investment, and the disadvantages that may

arise when creating an assessment. If we analyze the introductory part, then at the very beginning of the first

and the second papers authors try to give us the same idea about sharp growth in usage of ESG information in

the investment process, how in the future ratings assessments will be the main link in the market and every year

more and more companies will pay attention to "strategic sustainability" (Mark Carney, Governor Bank of

England, p.1).

The middle part (body) of the articles differs slightly in its purpose, namely, Carlota compares two

different analyses: traditional financial analysis and ESG ratings, showing a significant coverage and advantage

of the second, while Simon only talks about the advantages of ESG analysis, such as increases company profits

and the complexity of conducting this study due to the lack of accurate data. According to Simon MacMahon

(September 2020) they list various steps that help in evaluating companies, for this they need access to their

database and various types of secret information(business models, management methods), so based on this we

get separate information coming from each company. But according to Carlota Esguevillas (2020), there was

presented a little bit different research, where they try to analyze over 200 sources of ESG effectiveness and

they found out that 88 percent of companies had higher estimates and cash flow, which conclude that were

given general information that was taken from all companies together.

Both Simon MacMahon (September 2020) and Carlota Esguevillas (2020) note that the fact that the ESG

assessment of company ratings goes through one of the stages, which is based on the division of the company
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into different sectors, assigned to each of the three criteria: enviromental, social and governance, based on the

name. MacMahon and Esguevillas also noticed that these ESG points further affect the receipt of investments in

your company, since if this indicator is too low, the investor may refuse to invest money, and other investors

may follow his actions, vice versa with a positive assessment (ibid). This leads us to the fact that if a company

really cares about reputation and worries about its rating, they will start introducing new technologies or testing

various methods to improve the strategies and performance of their business so that it can attract new money.

So an important factor in achieving success or getting help in diffucult situation is to provide sufficient

information that can then be presented in a summary of ratings and shown to various external or internal

defenders. Another interesting point is that the first text describes the company Sustainalytics itself, which is

engaged in providing services for ESG ratings, while the second text contains publicly available information

and provides an example of a number of rating agencies (such as the aforementioned company Sustainalytics,

MSCI and FTSE ESG) that are beginning to thrive due to increasing demand. The author of the article “The

Challenges of rating ESG Perfomance” mentions the negative impact of innovations or changes in business

conduct or the introduction of new management methods, while mentioning an example related to Facebook,

which has become less concerned with protecting information, or an example related to buying less

environmentally friendly cars. While the author of the article “Why ESG ratings matter and how companies use

them” says that there is no agreement between the companies that evaluate ESG ratings, thus the result may

differ from the suppliers, as well as some customers expect to get full information about the company's

disadvantages from these ratings, they provide only some hints, and not the whole thing.

In conclusion, I would like to summarize this synthesis and say that the names of the topics completely

coincide with what was reflected in the text, namely, various methods, advantages and disadvantages of

evaluating the effectiveness of ratings, tell the reasons why these esgs are so important today and how

companies from different areas can use them correctly and for their intended purpose. It is also important not

only how high your ESG ratings are (in numbers), but also that you have information on each industry and can

understand and determine what you did wrong in the development and direction of the strategy. Also clients try

to identify for yourself the part of the information that they could not identify before and at the end it leabs to
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increase “overall sustainability perfomance” (Esguevillas, 2020, p. 2). Companies that want to do their best

should study better their niche in the business to distinctly understand the risks they may face.