A0744
Title: Inside the ESG ratings: (Dis)agreement and performance
Authors: Monica Billio - University of Venice (Italy) [presenting]
Michele Costola - Ca' Foscari University of Venice (Italy)
Loriana Pelizzon - SAFE - Goethe University (Germany)
Carmelo Latino - Leibniz Institute for Financial Research SAFE (Germany)
Iva Hristova - Ca Foscari University of Venice (Italy)
Abstract: The ESG rating criteria is examined used by prominent agencies and show that there is a lack of 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 difficult to measure the ability of a fund manager if financial performance sare 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 an agreement, it has no impact on financial performances.
