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 affect sustainable investments leading to the identification of different investment universes and consequently to the creation of different benchmarks. This implies that in the asset management industry it is extremely difficult 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 effect 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):Corporate social responsibility and environmental management
Place of publication:Chichester
Document Type:Article
Date of Publication (online):2021/09/01
Date of first Publication:2021/09/01
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2022/03/02
Tag:Corporate Social Responsibility; ESG rating agencies; sustainable investments
Page Number:20
First Page:1426
Last Page:1445
Funding information: Leibniz Institute for Financial Research SAFE, Frankfurt; European Investment Bank (EIB) for the project ' - ESG Factors and Climate Change for Credit Analysis and Rating'
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoCreative Commons - Namensnennung-Nicht kommerziell - Keine Bearbeitung 4.0