Disaggregating confusion? The EU Taxonomy and its relation to ESG rating

Maurice Dumrose, Sebastian Rink and Julia Eckert

Finance Research Letters, 2022, vol. 48, issue C

Abstract: This paper discusses the EU Taxonomy in the context of Environmental, Social, and Governance (ESG) ratings. ESG firm-level ratings tend to differ across ESG data providers, affecting investment decisions due to uncertainty about a firm's sustainability performance. We argue that the EU Taxonomy can support the reduction of this divergence. Using EU Taxonomy-related firm data in tobit regressions, we show that environmental ratings from three out of four ESG data providers are significantly related to the EU Taxonomy. However, our results suggest that the potential for reducing measurement divergence has not yet fully materialised. Our results have implications for investors, ESG data providers, and policy makers.

Keywords: Environmental; Social and governance (ESG); ESG investing; ESG ratings; EU taxonomy; Climate change; Uncertainty; Cost of capital; Capital allocation (search for similar items in EconPapers)
JEL-codes: D80 D81 G11 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001817

DOI: 10.1016/j.frl.2022.102928

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