Potential Applications of ESG Risk Ratings for Investors

Key Takeaways:

• In recent years, the demand for ESG ratings has skyrocketed. Even though it has existed for a decade, the term "ESG" was seldom used by the investing community or in company boardrooms.
• Companies that successfully manage ESG risks will stand out from their competitors and draw in investors who value ESG performance.
• ESG risk ratings offer insight into how exposed a company is to ESG variables that could affect its long-term performance, which can assist investors in identifying possible risks and opportunities.
• Investors may also utilize ESG risk ratings by adjusting the weighted average cost of capital (WACC) to consider ESG risks.
• Best-in-class strategies (BIC) strategies invest in companies with greater ESG risk ratings than their competitors in the same industry. 
• Investors may be able to lower the risks associated with subpar ESG performance and gain from the long-term development potential of sustainable themes by investing in firms with good ESG profiles.