SRI investment and ESG rating: analysis of the flaws of the ESG rating agencies

Abstract

In recent decades Socially Responsible Investments (SRI) are becoming an increasingly important and developed reality. Despite the increased importance, the rapid growth that has seen them protagonists has not allowed to develop adequate standards for monitoring performance in the three Environmental, Social and Governance factors (ESG). This lack of standardisation and transparency in the ESG rating agencies’ assessment processes leads to a not clear assessment of the performance of this kind of investment; as a consequence, there is often a climate of distrust about the SRI. The aim of this study is to identify the flaws in the ESG rating processes and to understand their consequences in order to underline the pressing need to move the first steps towards standardization.