ESG investing on Wall Street is dominated by the assessments of MSCI, which produces the ratings that large institutional investors and funds like Blackrock use to judge their investments.

The problem with these ratings is that they’re in some strange sense reversed from how one might intuitively imagine them. They don’t measure how positive the impact of a business is on the world; they measure how negative the impact of the world might be on the business. For example:

“McDonald’s Corp., one of the world’s largest beef purchasers, generated more greenhouse gas emissions in 2019 than Portugal or Hungary, because of the company’s supply chain. McDonald’s produced 54 million tons of emissions that year, an increase of about 7% in four years. Yet on April 23, MSCI gave McDonald’s a ratings upgrade, citing the company’s environmental practices. MSCI did this after dropping carbon emissions from any consideration in the calculation of McDonald’s rating. Why? Because MSCI determined that climate change neither poses a risk nor offers ‘opportunities’ to the company’s bottom line.

“MSCI then recalculated McDonald’s environmental score to give it credit for mitigating ‘risks associated with packaging material and waste’ relative to its peers. That included McDonald’s installation of recycling bins at an unspecified number of locations in France and the U.K. – countries where the company faces potential sanctions or regulations if it doesn’t recycle. In this assessment, as in all others, MSCI was looking only at whether environmental issues had the potential to harm the company. Any mitigation of risks to the planet was incidental.”