Based on data from six major providers, the study examines the causes of ESG rating discrepancies. One aspect is the different areas of application. This means that the ratings are based on different categories, which are not uniformly considered. In addition, the same categories are measured with different indicators, which often appear to be similarly suitable, but can lead to significantly different assessments. Finally, the relative weightings with which the individual categories are included in the final rating for the various providers also differ.
Shown are the normalized ratings of the 25 companies with the highest average deviations from the average rating.
Source: Berg, F. / Koelbel, J. / Rigobon, R. (2020), Aggregate Confusion: The Divergence of ESG Ratings, p. 38
Overall, the authors conclude that the differences in measurement are the main driver of the rating differences. However, the different areas of application have an almost equally large influence.
This means that the rating discrepancy is due both to what is measured and how it is measured.
This makes it difficult for users to understand what different ratings mean. However, the third dimension of the weightings plays only a minor role according to the research.
Conclusion
The differences in ESG ratings between the individual providers are mainly due to different measurement methods and the non-uniform selection of the categories considered. Ultimately, therefore, there is a lack of standardization. The different weightings of the categories are less decisive.
