The Organisation for Economic Co-operation and Development (OECD) has said available ESG-related metrics are “generally not sufficient” to measure alignment with its guidelines. The body recently published a report on the collection and classification of over 2,000 metrics from eight major ESG rating products, finding that they typically rely on controversy-based metrics, which risk penalising companies simply for the presence of risks or adverse impacts in their operations and supply chains. Metrics have “very limited coverage” of policies and performance beyond direct operations – such as supply chains – and often only capture due diligence measures with respect to specific topics, the OECD said in its report. “On their own, controversy screens will generally not be sufficient to assess compliance with the recommendations of the OECD guidelines,” the organisation added. “The absence or low number of controversies can indicate a robust responsible business conduct (RBC) management process but can also be the result of limited public attention and scrutiny over a specific company, RBC issue, sector, or geography.” In addition, the OECD found that 68% of assessed ESG rating products rely on input-based metrics. It noted that this can lead to partial ESG performance assessments, with limited information on how companies are managing the associated impacts, risks and opportunities holistically beyond their disclosure practices.
