Exploring the Nexus of Objectives and Rating Disparities

Abstract

This chapter explores the complex landscape of ESG (Environmental, Social, and Governance) ratings, focusing on their conceptual foundations, the methodologies employed by major rating agencies, the criteria used to evaluate corporate sustainability, and the significant divergences in ratings. It examines how different agencies interpret and apply ESG criteria, leading to varied ratings that complicate consistent comparisons for investors. Through a detailed analysis of sector-wise correlation and descriptive statistics, the chapter highlights the influence of sectoral characteristics on rating discrepancies and proposes recommendations for standardizing ESG reporting, enhancing transparency, integrating advanced technologies, and developing sector-specific guidelines to improve the reliability and comparability of ESG ratings.