ESG (Environmental, Social, and Governance) ranking and indexing are two distinct approaches used in the field of sustainable and responsible investing (SRI) to assess and evaluate companies based on their ESG performance. Here's the difference between the two:
ESG Ranking:
- ESG ranking is like giving grades to companies based on how well they do environmentally, socially, and in terms of governance. It helps compare companies to see which are doing better or worse in these areas.
- It's useful for investors who want to know which companies are ESG leaders.
- Ranking providers include S&P Global, Morningstar Sustainalytics
ESG Indexing:
- ESG indexing is like making a list of companies that are considered good in terms of environmental, social, and governance practices.
- These companies make up a special investment group that people can invest in.
- It's a way for investors to support and invest in companies that follow ESG principles.
- Index providers include MSCI Inc. FTSE Russell, An LSEG Business
Both ESG ranking and ESG indexing help investors who care about ESG issues, but they do it in different ways. Ranking grades companies, while indexing creates a list of companies to invest in.
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