How ESG ratings can miss the largest carbon emitters

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By Trey Thoelcke Published
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How ESG ratings can miss the largest carbon emitters

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(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns. He can be reached at [email protected])

CHAPEL HILL, N.C. (Callaway Climate Insights) — Ready for today’s climate finance pop quiz?

Which of the following companies would be better for the climate?

  • Company ABC, which produces relatively few direct greenhouse gas emissions (GHG), but whose manufacturing supply chain involves a high level of indirect GHG emissions?
  • Company XYZ, which is just the opposite of ABC, having a high level of direct GHG emissions but a low level of indirect emissions?

It’s a tossup, of course. The climate doesn’t care whether the ton of carbon that reaches the atmosphere comes from direct or indirect sources.

Nevertheless, most ESG rating agencies would rate Company ABC as better for the climate. That’s because those agencies typically focus only on Scopes 1 and 2 of a company’s carbon footprint, which reflect direct GHG emissions. Scope 3, which encompasses indirect emissions, is far more often than not simply ignored because most companies don’t report their Scope 3 emissions…

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Photo of Trey Thoelcke
About the Author Trey Thoelcke →

Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.

Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community. He previously oversaw the 24/7 Climate Insights site, managing editorial operations and content strategy, and currently oversees and creates content for My Investing News.

Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.

Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, overseeing a long-running critique group and moderating workshop sessions at regional conventions. He lives with his family in an old house in the Midwest.

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