ESG measurement uncertainty in Europe and beyond: the missing financial link and accountability

Zsuzsa Réka Huszár

Chapter 18 in Handbook of Climate Change and Financial Markets, 2026, pp 364-388 from Edward Elgar Publishing

Abstract: This chapter reviews the traditional shareholder theory and its perceived challenges, highlighting the growing need to revise or reconsider this approach to balance shareholder and stakeholder value maximization amid the growing sustainability and climate concerns. The discussion then transitions to sustainability considerations for businesses and the evolution of the environmental, social, and governance (ESG) framework. The chapter provides an in-depth analysis of ESG ratings around the world, highlighting the challenges investors and regulators face due to diverse methodologies and inconsistencies in ratings, even within a country. After reviewing ESG rating uncertainties, significant socioeconomic concerns related to the potential misallocation of funds resulting from ESG rating-directed investments are presented. The adaptation of artificial intelligence and machine learning (ML) in ESG ratings is also discussed, along with the new EU regulations on ESG rating agencies and ESG rating requirements for EU-domiciled companies and all relatively large enterprises operating within Europe. The chapter concludes by suggesting that aligning traditional shareholder theory with sustainable business practices can be achieved through financial accountability and the active involvement of local communities in issuing new business operation licenses. Imposing financial sanctions to ensure that new businesses operate without adverse effects on the community, considering not only CO₂ emissions but also heat, sound, light, and biodiversity implications, can ensure the adoption of ESG principles from the start and contribute to a broader shift toward sustainability in business practice.

Keywords: Capital allocation; Environmental; Social; Governance; ESG; ESG ratings; Financial Decision Making; Market Efficiency; Social Welfare (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035340415
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