Rating Objectivity: The Confusions in Nordic ESG Ratings : ESG Ratings Subjectivity and its Consequences

Sammanfattning: Environmental, Social and Governance measurements have significantly increased in usage due to growing concerns for environmental and sustainability problems in today’s world. However, with no commonly agreed-upon criteria for ESG ratings, the scoring measure creates confusion both at the investor and company level. Besides, ESG agencies have different processes and parameters for measuring ESG compliance, which contributes to the problem. The study examines four ESG rating agencies’ rating models and ESG scores to get a better understanding of deviations in ESG scores among Nordic companies. By also studying the correlation amongst ESG scores and market capitalizations in firms, the paper hopes to shed light on if any relationships exist between them. Our results show that the four major ESG raters in the study showed a weak to a non-significant correlation against each other. The maximum correlation found was 0.419 between Thomson Reuters and MSCI. RobecoSAM and MSCI showed the lowest significant correlation at 0.291. Sustainalytics was detected not to show any significant correlation with the other raters. Correlation among market capitalization and ESG Raters was detected to not correlate to a greater extent. Only one ESG rater, RobecoSAM, showed a significant size to score-correlation at 0.278 with market capitalization. Thus, market capitalization does not seem to have any significant influence on ESG agencies’ decisions to set scores. Précising the study’s findings, the raters’ methods deviate from one another, but also how ESG raters make use of underlying factors.