Friday, 26 February 2021 20:01

Inside the ESG Ratings: (Dis)agreement and performance

Written by
Rate this item
(0 votes)

Billio M, Costola M, Hristova I, Latino C, Pelizzon L

Additional Info

  • Published in: WORKING PAPER-DEPARTMENT OF ECONOMICS, CÀ FOSCARI. UNIVERSITY OF VENICE, CÀ FOSCARI. UNIVERSITY OF VENICE
  • Year: 2020
  • Abstract: We analyze the ESG rating criteria used by prominent agencies and show that there is a lack of a commonality in the definition of ESG (i) characteristics, (ii) attributes and (iii) standards in defining E, S and G components. We provide evidence that heterogeneity in rating criteria can lead agencies to have opposite opinions on the same evaluated companies and that agreement across those providers is substantially low. Those alternative definitions of ESG also affect sustainable investments leading to the identification of different investment universes and consequently to the creation of different benchmarks. This implies that in the asset management industry it is extremely diffcult to measure the ability of a fund manager if financial performances are strongly conditioned by the chosen ESG benchmark. Finally, we find that the disagreement in the scores provided by the rating agencies disperses the effect of preferences of ESG investors on asset prices, to the point that even when there is agreement, it has no impact on financial performances.
Read 778 times
Monica Billio

Full Professor in Econometrics - Ca’ Foscari University of Venice, Department of Economics

Promoting partner, Scientific Committees and Director of the Area Data Science