ESG to SDG: Do Sustainable Investing Ratings Align with the Sustainability Preferences of Investors, Regulators, and Scientists?

42 Pages Posted: 12 Aug 2022 Last revised: 8 Nov 2022

See all articles by Jan Anton van Zanten

Jan Anton van Zanten

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Robeco Asset Management

Joop Huij

Erasmus University - Rotterdam School of Management; Robeco; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

Date Written: November 6, 2022

Abstract

Sustainable investors aim to invest in companies that contribute to sustainable development. However, there is disagreement on how best to measure corporate sustainability performance. We assess the construct validity of two types of sustainability ratings: (i) a novel score that measures companies’ impacts on the Sustainable Development Goals (SDGs); and (ii) established ESG ratings that assess if companies face environmental, social, and governance risks. We develop three tests that gauge if these sustainability ratings can identify companies that investors, regulators, and scientists view as being (un)sustainable. Our findings show that, unlike ESG ratings, the SDG score: (i) captures investors’ revealed sustainability preferences; (ii) aligns with the EU taxonomy regulation; and (iii) supports climate change mitigation. We conclude that, as a sustainability rating, the SDG score has high, and ESG ratings low, construct validity. While concepts like ESG, sustainability, and impact can be used complementarily, we caution against using them interchangeably.

Keywords: Sustainable investing, ESG, impact investing, Sustainable Development Goals (SDGs), sustainable finance, EU Taxonomy

Suggested Citation

van Zanten, Jan Anton and Huij, Joop, ESG to SDG: Do Sustainable Investing Ratings Align with the Sustainability Preferences of Investors, Regulators, and Scientists? (November 6, 2022). Available at SSRN: https://ssrn.com/abstract=4186680 or http://dx.doi.org/10.2139/ssrn.4186680

Jan Anton Van Zanten (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Robeco Asset Management ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

Joop Huij

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.rsm.nl/jhuij

Robeco

Rotterdam, 3014DA
Netherlands

HOME PAGE: http://www.robeco.com/

Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

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