Review of Finance Vol. 26 No. 6 2022
Aggregate Confusion: The Divergence of ESG Ratings
Abstract
This paper investigates the divergence of environmental, social, and governance (ESG) ratings based on data from six prominent ESG rating agencies: Kinder, Lydenberg, and Domini (KLD), Sustainalytics, Moody’s ESG (Vigeo-Eiris), S&P Global (RobecoSAM), Refinitiv (Asset4), and MSCI. We document the rating divergence and map the different methodologies onto a common taxonomy of categories. Using this taxonomy, we decompose the divergence into contributions of scope, measurement, and weight. Measurement contributes 56% of the divergence, scope 38%, and weight 6%. Further analyzing the reasons for measurement divergence, we detect a rater effect where a rater’s overall view of a firm influences the measurement of specific categories. The results call for greater attention to how the data underlying ESG ratings are generated.
- DOI
- 10.1093/rof/rfac033
- Volume
- 26
- Issue
- 6
- Pages
- 1315-1344
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref