INSIGHTS FROM CFA SOCIETY SINGAPORE
ESG scores miss what matters. Can companies adapt?
A robust company resists or absorbs shocks without changing while a resilient one adapts, responds and adjusts
CONSIDER two regulated utilities with near-identical ESG ratings. Both publish a net-zero-by-2050 target. Both score similarly on major disclosure benchmarks. Both receive similarly strong governance ratings. On paper, they are interchangeable.
Look closer and they are nothing alike:
- Utility A is adapting: Capex shifts year on year towards flexibility and storage; coal segment is divested ahead of schedule; executive pay is tied to five-year decarbonisation metric; and risk disclosures name specific regional exposures.
- Utility B is reporting: Flat capex profile against stated plan; target rests on unspecified post-2035 pathway; incentive plan rewards annual output; and risk section reproduces sector boilerplate.
Most ESG scores struggle to differentiate between companies that are adapting and reporting. They standardise what companies disclose; they do not test what companies can do under pressure.
