Divergence of ESG ratings, is there a real issue?

Substantial score dispersion and the low correlation of ESG ratings have been a constant source of bewilderment and criticism. MIT Sloan’s “The Aggregate Confusion Project” finds that the correlation of ESG scores among six prominent ESG assessment agencies was on average 0.61. In comparison, mainstream credit ratings are correlated at 0.92.

It appears that this discrepancy impedes the desire of firms to enhance their ESG performance; the scores communicate mixed signals on the priority for each company, and when seen across assessment agencies, it seems the company must address every possible risk.

“Your personal values are the best compass for your unique journey.”

This quote summarizes possible reasons why ESG rating scores are different among various rating providers.

Let us try to analyze why the methodologies differ. ESG score providers each have their own proprietary materiality, industry classification, and ESG issues using which they compile their scores, which explains the reasons for the variance, viz.

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