ESG Ratings: The Road Ahead

Abstract

In this report, we show that a standard set of variables would partially resolve inconsistencies and lack of uniform standards among rating providers, which often confuses investors. Furthermore, we dissociate the impact of the rating agencies’ different focus on E, S, or G from that of using non-standardized data. While the former, if properly disclosed, can be useful as it allows investors to choose what rating will align more with their preferences, the latter necessarily requires harmonization of the data.

Keywords: ESG ratings, Machine learning, Environmental, Social governance

JEL Classification: C14, C5, G10, G11, G14, G30