Is a reassuring ESG rating enough to show that a company is managing its environmental risks?
In a Business Times commentary, Professor Johan Sulaeman, Director of SGFIN, argues that banks and investors need credible evidence of how companies use and affect natural resources. Drawing on research published in PNAS, he highlights that widely used ESG ratings do not consistently capture companies’ actual exposure to deforestation. He also points to the limits of headline water-efficiency figures in assessing the impact of data centres on local water supplies. His message to financiers: seek reliable evidence, continue monitoring after capital is committed, and make environmental performance consequential for lending and investment decisions.