The ESG Rating and Ranking Industry; Vice or Virtue in the Adoption of Responsible Investment?
75 Pages Posted: 3 May 2017 Last revised: 27 May 2017
Date Written: April 11, 2017
The ESG initiative industry has grown tremendously in the last decades and many of these organizations serve as an intermediary between companies and their investors. Billions of capital are allocated based on the judgment of these intermediaries and many academic papers rely on them as well. Regardless of its widespread use, little is known about how this industry came about and what its role is. The multitude of initiatives and lack of convergence raises questions on whether the industry’s costs outweigh the benefits. This paper therefore investigates 218 different ESG initiatives and uses the Industry Life Cycle Model, to illustrate that the industry is maturing. It also draws upon interviews conducted with its users to strengthen this finding. The paper concludes that reporting fatigue, a lack of convergence and the (sometimes) poor quality and transparency have made the industry more vice than virtue in the adoption of Responsible Investment.
Keywords: ESG ratings, Responsible Investment, ESG initiatives, ESG rankings, Corporate Social Responsibility, Intermediaries
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