Chasing ESG Performance: Revealing the Impact of Refinitiv's Scoring System

22 Pages Posted: 20 Dec 2023 Last revised: 6 Feb 2024

See all articles by Matteo Benuzzi

Matteo Benuzzi

University of Trento

Karoline Bax

Technische Universität München (TUM) - TUM School of Management

Sandra Paterlini

University of Trento - Department of Economics and Management

Emanuele Taufer

affiliation not provided to SSRN

Date Written: December 12, 2023

Abstract

ESG metrics, pivotal to sustainable finance, face intensified scrutiny for precision and representativity. Recent concerns stem from potential retroactive score adjustments and data aggregation, risking misrepresentation of company performance. We find that Refinitiv’s rating methodology may obscure genuine company progress by artificially inflating high-ranking firms’ scores with new, lower-performing entrants while diminishing actual advancements due to peer competition. Our analysis, spanning 2012-2021 across three key sectors, indicates only 41% of score variation relates to company disclosures. To rectify these issues, we propose replacing Refinitiv’s percentile ranking with the ’performance ratio’ scoring method. Our analysis reveals a significant correlation between Refinitiv’s current approach and our performance ratio method. However, the latter is less affected by new entrants and peer comparison, maintaining robustness against outliers. Our findings underscore the necessity for a refined ESG scoring system aligning more accurately with corporate sustainability efforts and actual representation of the underlying data.

Keywords: ESG scores, Refintiv methodology, Sustainability

Suggested Citation

Benuzzi, Matteo and Bax, Karoline and Paterlini, Sandra and Taufer, Emanuele, Chasing ESG Performance: Revealing the Impact of Refinitiv's Scoring System (December 12, 2023). Available at SSRN: https://ssrn.com/abstract=4662257 or http://dx.doi.org/10.2139/ssrn.4662257

Matteo Benuzzi

University of Trento

Karoline Bax (Contact Author)

Technische Universität München (TUM) - TUM School of Management ( email )

Freising
Germany

Sandra Paterlini

University of Trento - Department of Economics and Management ( email )

Via Inama 5
Trento, I-38100
Italy

Emanuele Taufer

affiliation not provided to SSRN

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