ESG-rating, Differences & Sustainability

Abstract

ESG-ratings are widely and commonly used when evaluating sustainable investments. Over the past five years, a growing number of agencies providing ESG-ratings has surfaced, making up a vast variety of different options when choosing which agency to rely on in identifying sustainable investments. Derived from the increase in ESG offerings, a suspicion has occurred as to whether the results from these ratings are unanimous or differ from one other. This thesis aims to elucidate, the differences between six selected ESG-raters, and how their ESG-ratings reflect sustainability as detailed by Sustainable Business Model theories and UNPRI’s 14 ESGissues. As a preliminary investigation, the thesis has conducted a comparison of ratings on 100 European and American based companies. To further assess the differences between the raters, a multiple case study approach was used in deciphering the differences in methodologies between the six included ESG-rating agencies and how these assess sustainability in the ESG-rating process. The investigation of ratings on European and American companies, showed a great difference in ratings among the included ESG-rating agencies, confirming the suspicion regarding differences in how ESG-raters rate companies. Results reveal some apparent rules of the game, in relation to what an ESG-rating consists of and in here where they differ from one another. The results on how sustainability is reflected in ESG-ratings, are ambiguous. Based on the included perspectives on sustainability, there seemingly are limited consistency between the included ESG-raters as to how they reflect the perspectives of Sustainable Business Model theories and UNPRI’s 14 ESG-issues. The results state, that some aspects of sustainability are clearly reflected in ESG-ratings, whereas others are neglected and ignored completely. The results of this thesis are applicable for use by practitioners of multiple positions, as the results are relevant for both users of ESG-ratings as well as the companies whereon ESG-ratings are measured.