ESG Rating—Necessity for the Investor or the Company?

Ilze Zumente and Nataļja Lāce
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Ilze Zumente: Faculty of Engineering Economics and Management, Riga Technical University, LV-1658 Riga, Latvia
Nataļja Lāce: Faculty of Engineering Economics and Management, Riga Technical University, LV-1658 Riga, Latvia

Sustainability, 2021, vol. 13, issue 16, 1-14

Abstract: With the rise of responsible investments, the demand for non-financial data has multiplied. Even for those companies who have obtained an environmental, social and governance (ESG) assessment, the scores issued by rating agencies tend to depict differing pictures of the sustainability performance. First, this article explores the approaches employed by different ESG rating providers. Next, it aims to evaluate the availability and correlation of multiple third-party ratings awarded to companies that are stock-listed on European stock exchanges. Finally, an independent t -test analysis is performed to explore whether the lack of ESG rating availability in the region of Central and Eastern Europe (CEE) has a negative impact on stock’s trading volume and returns. The results suggest substantial divergence in the ratings awarded to the European companies; therefore, companies should pay attention to the methodologies and practices applied by differing agencies to make sure that their efforts are appropriately evaluated, while investors should bear in mind the correlation coefficient of only 0.58 between the two most popular ESG ratings. The analysis on CEE companies shows significant differences in the trading volume between companies that have been awarded an ESG rating and those that have not, implying the importance of the ESG score not only for the investors but also for the companies.

Keywords: CEE; environmental; social and governance (ESG); ESG ratings (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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