Aggregate Confusion: The Divergence of ESG Ratings
Forthcoming Review of Finance
48 Pages Posted: 20 Aug 2019 Last revised: 26 Apr 2022
Date Written: August 15, 2019
This paper investigates the divergence of environmental, social, and governance (ESG) ratings based on data from six prominent ESG rating agencies: KLD, Sustainalytics, Moody’s ESG (Vigeo-Eiris), S&P Global (RobecoSAM), Refinitiv (Asset4), and MSCI. We document the rating divergence and map the different methodologies onto a common taxonomy of categories. Using this taxonomy, we decompose the divergence into contributions of scope, measurement, and weight. Measurement contributes 56% of the divergence, scope 38%, and weight 6%. Further analyzing the reasons for measurement divergence, we detect a rater effect where a rater’s overall view of a firm influences the measurement of specific categories. The results call for greater attention to how the data underlying ESG ratings are generated.
Keywords: Corporate Social Responsibility, Corporate Sustainability, ESG Rating Agencies, ESG Rating Disagreement
JEL Classification: M14, G24
Suggested Citation: Suggested Citation