Examining Financial Information's Role in Determining ESG Ratings

Abstract

Even before the term ESG first appeared, investors looked for a way to integrate the concept of sustainability into their portfolio. ESG ratings marked a turning point by being more accessible as a source of information and therefore were incorporated into the main investment strategies, for instance by becoming the negative or positive screening criterion in investor choices. Despite their wide use by investors and researchers, some doubts on their reliability continue existing due to problems such as the lack of a common definition, lack of standardization, score disagreement and biases. This dissertation will focus on the last point aiming to clarify whether the ESG rating really represents an added value guiding investors' choices or whether it discloses information that is already available in the market through financial data. Using ESG score rated by Bloomberg between 2015 and 2022, I tested whether ESG rating could be predicted using financial data and fixed values. In interpreting the relationship ESG scores-financial data, the most important biases (eg size, country, sector) were taken into account.