By Simon Jessop

LONDON, (Reuters) – The world’s largest economies must do more to improve their environmental and social governance ratings. This is according to a Monday report by the OECD.

The report was released ahead of the October G20 meeting. It stated that while ESG criteria investment could be a good way to help the international climate goals, there were “considerable challenges.”

The report highlighted, in particular, that there are many approaches for assessing ESG issues and inconsistent data. There is also a dearth of comparisons between ESG rating methods.

The report stated that “These competing dynamics, challenges, and ESG ratings and investing could compromise the market integrity, erode investors confidence and mask the extent to which investment decisions have environmental and climate-related consequences.”

“Ultimately, the challenges may limit the pace of capital allocation required to realize tangible progress towards long-term value support and a transition into low-carbon economies.”

This report comes after the International Organization of Securities Commissions opened a consultation on ESG rating ratings in July. It also precedes the next round of international climate negotiations in November.

The OECD urged governments to guarantee global transparency, comparability, and quality in core ESG metrics.

The report stated that ratings agencies seemed to give less importance to negative environmental impact and place more emphasis on the disclosure by companies of their policies and goals, without assessing their effect.

Rating agencies often use a lot of sub-category score to help them. The OECD demanded more clarity about the meaning of these scores in order to make it easier for investors.

The lack of data and policy clarity on carbon pricing, support for renewables and investments was also preventing investors from making their plans.

Globally, more international cooperation is required to make sure that ESG-related practices and climate-transition-related practices are progressed in a way that reduces market fragmentation and increases investor confidence.