How sustainable is your portfolio?

Negligible and low categories are assigned to companies that manage their ESG risks well, whereas high and severe categories are assigned to companies that manage their ESG risks poorly. A medium rating means that some risks are managed well, while other risks are managed poorly. 

ESG Risk categories are absolute, which means that a bank can be directly compared with an oil company, or any other type of company.

Filtering for sustainable stocks on Saxo’s platforms

In addition to reviewing a company’s ESG risk rating, it is possible to screen for stocks using a specific ESG risk category. The screener will then only return the list of stocks that meet the specified criteria. 

Ratings are typically based on historical data, thus they are backward-looking and shouldn’t be used to forecast return potential.

Also, as there are no standards for assessing a company’s ESG practices, providers use different methodologies, which are at times subjective and can result in major differences. Ratings correlations between the major providers are as low as 0.45 (Source Brandon, R. G., P. Krueger, and P. S. Schmidt. 2021. “ESG Rating Disagreement and Stock Returns.” Financial Analysts Journal 77), which is substantial. In comparison, the correlation between credit agencies' ratings is above 0.9 and perfect correlation is 1. This divergence makes comparison difficult, but it can also serve to highlight problem areas that should be further researched by investors.