The Challenge of Disparities in ESG Ratings

Environmental, social, and governance (ESG) considerations play an increasingly important role in investment decisions. Due to data vendors’ lack of a common framework for creating ESG ratings, substantial disparities exist across vendors in their ESG ratings for the same company. ESG rating disparities make it difficult to assess whether ESG ratings are aligned with companies’ ESG performance and how ESG investing affects investment performance. This presents challenges to asset owners, policymakers, academics, and asset managers. This article highlights the nature and sources of the ESG rating disparities and advises investors to understand these aspects of noisy ESG ratings and to exercise caution when implementing ESG integration.Full article available at https://jesg.pm-research.com/content/2/3/107