How Reliable are Corporate ESG Ratings?

Environmental, Social, and Corporate Governance (ESG) investing has grown in popularity in recent years. As a result of major investment firms and individual stockholders making ethical and social considerations in their investing, firms and corporations have developed ESG rating matrices to grade publicly traded companies on their commitment to diversity and the fight against climate change. These ranking systems, however, have raised eyebrows in light of recent news that major tobacco companies are receiving higher ESG scores than the electric car manufacturer, Tesla. Serious questions are being raised about the reliability of these rating systems as tools for investors, and whether a company's focus on diversity and inclusion on its board of directors should be considered an ethical investment, even if its main product is responsible for millions of deaths every year.