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Common factors behind companies’ Environmental ratings

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  • Gucciardi, Gianluca
  • Ossola, Elisa
  • Parisio, Lucia
  • Pelagatti, Matteo

Abstract

The increasing interest in sustainability within economics and finance has led to the widespread adoption of Environmental, Social, and Governance (ESG) metrics, expressed as ratings or indices, to assess the sustainable performance of companies. However, inconsistencies among data providers stem not only from definitional differences but also from disagreements on how to measure ESG factors. This paper proposes a novel approach by conversely focusing on ESG factors common to data providers. Through three empirical approaches – correlation analysis, principal component analysis, and panel data regressions – we aim to understand the shared components shaping common ESG metrics, particularly in the Environmental Pillar. Our findings emphasize a limited number of indicators that act as common factors across three providers, primarily concerning managing natural resources. This commonality emerges despite the different perspectives adopted by the rating agencies — such as risk management, corporate impact management, and integration into corporate strategy. This analysis offers valuable insights for companies, financial institutions, practitioners, scholars, and policymakers, enabling more concise information for analyses and decision-making in their respective fields.

Suggested Citation

  • Gucciardi, Gianluca & Ossola, Elisa & Parisio, Lucia & Pelagatti, Matteo, 2025. "Common factors behind companies’ Environmental ratings," International Review of Financial Analysis, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:finana:v:100:y:2025:i:c:s1057521925000481
    DOI: 10.1016/j.irfa.2025.103961
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    1. Caterina Morelli & Simone Boccaletti & Paolo Maranzano & Philipp Otto, 2025. "Multidimensional Spatiotemporal Clustering – An Application to Environmental Sustainability Scores in Europe," Environmetrics, John Wiley & Sons, Ltd., vol. 36(2), March.

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    More about this item

    Keywords

    Environmental sustainability; ESG ratings; Common factors; Rating disagreement;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G3 - Financial Economics - - Corporate Finance and Governance
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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