Common Factors Behind Companies’ Environmental Ratings

50 Pages Posted: 22 May 2024 Last revised: 30 May 2024

See all articles by Gianluca Gucciardi

Gianluca Gucciardi

University of Ferrara

Elisa Ossola

University of Milano-Bicocca

Lucia Parisio

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS); Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Matteo M. Pelagatti

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS)

Date Written: May 21, 2024

Abstract

The increasing interest in sustainability within economics and finance has led to the widespread adoption of Environmental, Social, and Governance (ESG) metrics, expressed as ratings or in- dices, for assessing firms’ sustainable performance. However, inconsistencies among data providers stem not only from definitional differences but also from disagreements in measuring ESG factors.

This paper proposes a novel approach by conversely focusing on ESG factors common to data providers. Through three empirical approaches—correlation analysis, principal component analysis, and panel data regressions—we aim to understand the structural components shaping ESG metrics, particularly in the Environmental Pillar. Our findings emphasize a limited number of indicators that act as common factors across three providers, primarily concerning the management of natural resources. Despite their shared thematic focus, depending on the provider, these indicators are approached with different perspectives—such as risk management, corporate impact management, and integration into corporate strategy. This analysis offers valuable insights for companies, financial institutions, practitioners, scholars, and policymakers, enabling more concise information for analyses and decision-making in their respective fields.

Keywords: ESG; ESG ratings; Common Factors; Rating Disagreement

JEL Classification: M14; G24; G3; Q56

Suggested Citation

Gucciardi, Gianluca and Ossola, Elisa and Visconti-Parisio, Lucia and Pelagatti, Matteo M., Common Factors Behind Companies’ Environmental Ratings (May 21, 2024). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4834107 or http://dx.doi.org/10.2139/ssrn.4834107

Gianluca Gucciardi

University of Ferrara ( email )

Via del Gregorio 13
Ferrara, 44100
Italy

Elisa Ossola (Contact Author)

University of Milano-Bicocca ( email )

Belgium

Lucia Visconti-Parisio

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Matteo M. Pelagatti

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

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