Towards a better understanding of ESG ratings

Robert Stewart

Journal of Sustainable Finance & Investment, 2025, vol. 15, issue 3, 624-643

Abstract: ESG raters provide substantially different ratings for the same companies. But what do these ratings measure? Applying content analysis to the methodology documents of 13 different ESG raters, I analyze the definitions of ESG ratings to determine what is being measured and inspect the pillars used to frame ESG ratings to determine, conceptually, how these ESG ratings are operationalized. The results indicate that ESG raters define different performance outcomes and deconstruct ESG arbitrarily. Some raters define a risk exposure, some define a performance management outcome, and others conflate risk and performance management concepts. I propose a categorization to classify ESG ratings based on their definitions. I further show that raters delineate ESG arbitrarily, leading to further disagreement in the operationalization of ESG ratings. These results show that ESG ratings are not conceptually designed to be comparable. Users of ESG ratings must make selections based on appropriate selection criteria.

Date: 2025
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DOI: 10.1080/20430795.2025.2479538

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