ESG ratings: an industry in need of a major overhaul

Ventura L. Charlin · Arturo Cifuentes · Jorge Alfaro

45 citations0/0 files storedJournal of Sustainable Finance & Investment

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Corporate Social Responsibility Reporting Credit Risk and Financial Regulations Sustainable Finance and Green Bonds

Abstract

The impetus for adopting ESG-sensitive investment policies has increased steadily since 2006, when the United Nations outlined its Principles of Responsible Investment (PRI). Recently, a new industry aimed at helping investors to make sound ESG-driven decisions has flourished: ESG rating agencies. We investigated the ratings provided by four leading rating agencies (ISS, MSCI, S&P, and Sustainalytics) to the companies in the S&P500 index. Using measurement theory techniques, we concluded that ESG ratings currently exhibit an abysmally low level of reliability (18.3%) and agreement (5.4%). This situation differs sharply not only with the levels of reliability and agreement found in credit ratings but also with the reliability and agreement found in areas where subjectivity plays an important role, for example, wine ratings. These findings challenge the claim that ESG ratings can be helpful to make investment decisions, as they suggest that the ESG ratings industry as a whole is in much disarray.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 45 citations exist upstream.

References

1960A Coefficient of Agreement for Nominal Scales 1979Intraclass correlations: Uses in assessing rater reliability.1968Weighted kappa: Nominal scale agreement provision for scaled disagreement or partial credit.1946On the Theory of Scales of Measurement 2015ESG and financial performance: aggregated evidence from more than 2000 empirical studies 1981Developing criteria for establishing interrater reliability of specific items: applications to assessment of adaptive behavior.2008Validity and reliability of measurement instruments used in research 2021Why is Corporate Virtue in the Eye of The Beholder? The Case of ESG Ratings

Cited by

2024Rethinking the effect of ESG practices on profitability through cross-dimensional substitutability 2024Is air pollution the original sin of firms? The impact of air pollution on firms' ESG scores 2023Are environmental, social and governance (ESG) ratings reliable indicators of emissions outcomes? A case study of the airline industry 2024EU’s sustainable finance disclosure regulation: does the hybrid reporting regime undermine the goal to reorient capital to climate action?

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.