Inside the ESG ratings: (dis)agreement and performance

  • We analyze the ESG rating criteria used by prominent agencies and show that there is a lack of a commonality in the definition of ESG (i) characteristics, (ii) attributes and (iii) standards in defining E, S and G components. We provide evidence that heterogeneity in rating criteria can lead agencies to have opposite opinions on the same evaluated companies and that agreement across those providers is substantially low. Those alternative definitions of ESG also a↵ect sustainable investments leading to the identification of di↵erent investment universes and consequently to the creation of di↵erent benchmarks. This implies that in the asset management industry it is extremely dicult to measure the ability of a fund manager if financial performances are strongly conditioned by the chosen ESG benchmark. Finally, we find that the disagreement in the scores provided by the rating agencies disperses the e↵ect of preferences of ESG investors on asset prices, to the point that even when there is agreement, it has no impact on financial performances.

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Author:Monica BillioORCiDGND, Michele CostolaORCiD, Iva Hristova, Carmelo Latino, Loriana PelizzonORCiDGND
Parent Title (English):SAFE working paper series ; No. 284
Series (Serial Number):SAFE working paper series (284)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2020
Year of first Publication:2020
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2020/08/11
Tag:Corporate Social Responsibility; ESG Rating Agencies; Sustainable Investments
Issue:June 15, 2020
Page Number:42
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht