Divergence and aggregation of ESG ratings: a survey

Arianna Agosto () and Alessandra Tanda ()
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Arianna Agosto: University of Pavia
Alessandra Tanda: University of Pavia

No 225, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: This paper reviews the existing literature on the divergence of Environmental, Social, and Governance (ESG) ratings and explores various aggregation methods. It highlights the challenges posed by inconsistent ESG ratings and their implications for investment decisions. The study conducts a comprehensive review of prior research focusing on ESG ratings, examining their correlation levels and the methodologies employed to assess corporate sustainability. It also investigates traditional aggregation techniques and modern machine learning approaches used to address these inconsistencies. The review reveals that ESG ratings exhibit a low level of correlation across different providers, raising concerns about their reliability as investment indicators. Although some studies propose advanced aggregation methods to enhance accuracy, significant gaps remain in understanding how to effectively consolidate ESG information to create a dependable sustainability indicator. This paper provides a critical analysis of the current state of ESG rating methodologies, emphasizing the need for improved aggregation strategies. It underscores the importance of future research in leveraging ESG data to develop more consistent and reliable measures of corporate sustainability.

Keywords: ESG ratings; divergence; aggregation; survey. (search for similar items in EconPapers)
JEL-codes: C4 G11 G12 Q5 (search for similar items in EconPapers)
Pages: 15
Date: 2024-12
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