Inside the ESG ratings: (Dis)agreement and performance

Monica Billio, Michele Costola, Iva Hristova, Carmelo Latino and Loriana Pelizzon ()

No 284, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We analyze the ESG rating criteria used by prominent agencies and show that there is a lack of a commonality in the definition of ESG (i) characteristics, (ii) attributes and (iii) standards in defining E, S and G components. We provide evidence that heterogeneity in rating criteria can lead agencies to have opposite opinions on the same evaluated companies and that agreement across those providers is substantially low. Those alternative definitions of ESG also affect sustainable investments leading to the identification of different investment universes and consequently to the creation of different benchmarks. This implies that in the asset management industry it is extremely dicult to measure the ability of a fund manager if financial performances are strongly conditioned by the chosen ESG benchmark. Finally, we find that the disagreement in the scores provided by the rating agencies disperses the effect of preferences of ESG investors on asset prices, to the point that even when there is agreement, it has no impact on financial performances.

Keywords: Corporate Social Responsibility; ESG Rating Agencies; Sustainable Investments (search for similar items in EconPapers)
JEL-codes: G11 G24 M14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Inside the ESG ratings: (Dis)agreement and performance (2021)
Working Paper: Inside the ESG Ratings: (Dis)agreement and performance (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:284

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