‘Opaque & unreliable’ ESG scores demand new assessment model: Scientific Beta

Patrick Buncsi

25 March 2025

Current proprietary ESG scoring models lack precision and remain excessively complex, inviting significant greenwashing risks, argues Scientific Beta, with the leading index provider reinforcing its award-winning methodology as the gold standard for assessing funds’ ESG bona fides.

The Climate Transition Risk Beta (CTR Beta) was earlier this month named the industry’s Best ESG Index Provider at the ESG Investing Awards 2025 in London.

The award, the firm said, was a clear recognition of its scientific, evidence-based approach to ESG and climate investment modelling, “built on facts instead of subjective opinions”.

The model, which uses publicly available raw data inputs, has been touted by the firm as a “transparent and academically validated methodology”.

“It overcomes the shortcomings of backward-looking carbon emissions data, by extracting relevant information from market prices, which represent a sort of consensus between a multitude of investors, on which companies are deemed to be hurt or to benefit from future shifts in climate transition risks.”

Investors are being misled

Traditional ESG scoring methods, many of which lack a precise, consistent and evidence-based approach, Scientific Beta argues, are failing to deliver consistent assessments. As a result, many investors may be misled by the genuine sustainability credentials of ESG investment products.

“Scientific Beta has repeatedly warned regulators in Europe and Australia about the greenwashing risks of using proprietary ESG scores to meet investors’ legitimate sustainability goals,” it said.

Citing the firm’s own research, Scientific Beta deputy CEO and index director Daniel Aguet warned that current proprietary models remain “largely unreliable”, with ESG scores diverging significantly from one provider to the next.

“Hence, they reflect mostly opinions rather than objective facts”, he said.

What is more, while it is tempting to associate a fund’s promised ESG credentials with strong financial outperformance, the researcher has warned investors not to conflate these two metrics.

In-house research, corroborated by academic findings, shows that ESG data is not a reliable source of risk-adjusted financial outperformance, Scientific Beta wrote.

“Hence the objective of a sustainable investment strategy should not be an illusory quest for financial alpha.

“This means that investors’ sustainability-related goals are best handled without mixing up the financial and sustainability levers in the construction of investment portfolios.

“For investors who wish to meet sustainability goals or constraints, this requires addressing the three dimensions of investments, namely sustainability, financial performance and financial risks, at distinct steps of the portfolio construction, using distinct data inputs.”