Are ESG ratings unreliable?
ESG, (environmental.social.governance) also known as sustainability or corporate social responsibility, has moved from the feel-good fringes to the center of business decision making as consumers want to buy products from companies that reflect these values. An estimated $30 trillion of assets are invested worldwide relying in some way on ESG information, a figure that has grown 34% since 2016. But Berg and al. find that ESG ratings generated by the five more prominent rating agencies differ substantially from each other. Ironically, according to the authors, the ambiguity around ESG ratings is an impediment to prudent decision-making that would contribute to an environmentally sustainable and socially just economy.
Aggregate Confusion: The Divergence of ESG Ratings
Authors: Florian Berg, Julian F. Koelbel, and Roberto Rigobon
From: MIT, University of Zurich
How relevant are ESG ratings?
George Serafeim uses data on 38 international firms traded in the US, European and Asian-Pacific stock exchanges during the period 2010-2018 and finds that:
- The price of corporate sustainability in capital markets is conditional on public sentiment about a firm’s sustainability activities;
- As a result, in the presence of negative public sentiment, firm sustainability activities are valued less!
ESG rating, Public Sentiment and the Price of Corporate Sustainability
Authors: George Serafeim
From: Harvard University
