Common factors behind companies’ Environmental ratings

Gianluca Gucciardi, Elisa Ossola, Lucia Parisio and Matteo Pelagatti

International Review of Financial Analysis, 2025, vol. 100, issue C

Abstract: The increasing interest in sustainability within economics and finance has led to the widespread adoption of Environmental, Social, and Governance (ESG) metrics, expressed as ratings or indices, to assess the sustainable performance of companies. However, inconsistencies among data providers stem not only from definitional differences but also from disagreements on how to measure ESG factors. This paper proposes a novel approach by conversely focusing on ESG factors common to data providers. Through three empirical approaches – correlation analysis, principal component analysis, and panel data regressions – we aim to understand the shared components shaping common ESG metrics, particularly in the Environmental Pillar. Our findings emphasize a limited number of indicators that act as common factors across three providers, primarily concerning managing natural resources. This commonality emerges despite the different perspectives adopted by the rating agencies — such as risk management, corporate impact management, and integration into corporate strategy. This analysis offers valuable insights for companies, financial institutions, practitioners, scholars, and policymakers, enabling more concise information for analyses and decision-making in their respective fields.

Keywords: Environmental sustainability; ESG ratings; Common factors; Rating disagreement (search for similar items in EconPapers)
JEL-codes: G24 G3 M14 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:100:y:2025:i:c:s1057521925000481

DOI: 10.1016/j.irfa.2025.103961

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