Accenture Banking Blog

This series of blogs looks at the opportunities and challenges associated with green finance in Southeast Asia, and draws on a recent position paper “Green Finance in Singapore and ASEAN: Opportunities and Challenges” by EuroCham Singapore and Accenture.

My first blog outlined why – and how – ASEAN should drive the convergence of green standards to boost sustainable finance in the region. This blog looks at how regulators in ASEAN can improve ESG ratings practices.

First, though, let me explain why this is so important. In 2020, researchers at MIT compared the correlation difference between ESG ratings from industry-leading second-party opinion (SPO) players and credit ratings. To do so, of more than 900 firms as scored by six prominent ESG ratings agencies.[1]

The correlation for ESG ratings averaged 0.54 (where 1.0 represents perfect correlation and zero means no linear correlation), and ranged between 0.38 and 0.71. By comparison, the correlation on corporate credit ratings as scored by Moody’s Investor Services and S&P Global Ratings averaged 0.99.[2]

That is a significant gap, and it matters because the signatories to the Principles for Responsible Investing (PRI) own or manage US$103 trillion in assets and, as the MIT paper noted, have committed “to integrating ESG information into their investment decision-making.”

One consequence of this lower correlation is that ESG performance is less likely to be reflected in companies’ share and bond prices, the MIT paper stated. Another is that companies get mixed signals from ESG ratings agencies about what is worth doing, which gives them less incentive to improve.

Time to act

There are several reasons why ESG ratings show a lower rate of correlation. First, although analysts follow guidelines, their take on what a company says it wants to use a loan or proceeds from a bond for and its estimated impact is qualitative. This leaves assessments open to interpretation. Second, many SPOs rely on self-reported data from companies. And third, the framework for scoring varies, as does the weight that ratings agencies give to different factors.

What’s needed is a harmonised approach to ESG ratings, and the EuroCham Singapore report highlights three potential solutions for Asian regulators. First, regulators could officially endorse a group of SPO providers – as the Monetary Authority of Singapore (MAS) is working to do – defining strict criteria on the data used and for the approach employed to complete an ESG assessment. This would bring transparency to how ESG ratings are determined. Second, they could develop an “Ecolabel” similar to the EU’s, with a standardised green ratings scale for financial products like bonds, mutual funds and ETFs. And third, they could regulate SPO providers in the way they do for credit ratings agencies, ensuring providers act in a fair, transparent and equitable manner, and legislating an element of liability.

Improving the transparency and confidence level of financial products like green bonds and sustainability-linked loans would see ratings converge, which would allow investors to trade on them. This would enable broader capital markets activity, lower the cost of research for investors, and boost interest.

That said, it’s right to acknowledge that there’s a fair amount happening in this rapidly evolving space. MAS, for example, is ahead of the curve when it comes to sustainability issues, including working with the financial industry to create a set of guidelines on environmental risk management, and helping to develop green finance solutions and markets.

For its part, the Bank of Thailand’s strategic plan includes “promoting a stable financial environment to achieve sustainable and inclusive economic development”, and encouraging financial service providers “to embed the concept of sustainability” into their organisational culture “as an integral part of all operations.”[3]

Regulators in ASEAN, then, are raising the bar on sustainability. Yet there is more to do.

That brings me back to the results of that MIT paper. I’m sometimes asked whether ESG ratings could one day correlate close to the 0.99 credit ratings level, to which I’d say yes. Doing so starts by standardising the metrics used – as I discussed in my first blog – and by applying a common framework.

But this isn’t all that is needed – a critical mass of skills and talent are crucial too, which is why my next blog will examine the third proposal in the EuroCham Singapore and Accenture report: building a green finance talent pool.

[1] The six were: KLD, Sustainalytics, Vigeo-Eiris, Asset4, RobecoSAM and MSCI. See:

[2] Aggregate Confusion: The Divergence of ESG Ratings. See: MIT Sloan School Working Paper 5822-19

[3] Bank of Thailand’s Strategic Plan 2020 – 2022 Central Bank in a Transformative World. See:

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