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Systematic common components in ESG ratings across legal origins

Author

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  • Xie, Ting
  • Chaudhuri, Kausik
  • Jin, Han
  • Shin, Yongcheol

Abstract

This study investigates the systematic components of ESG ratings by applying a multilevel factor model using the GCC approach. Leveraging ESG data from MSCI and Refinitiv across countries grouped by legal origin (English, French, German, and Scandinavian), we identify a single global factor consistently present across aggregate ESG scores and individual E/S/G pillars, reflecting the globalisation of ESG standards. However, the number and influence of local factors vary across legal origins and data providers. Notably, Refinitiv ratings are dominated by global factors, while MSCI ratings exhibit stronger local factor influence. These findings reveal rater-specific divergences and mixed evidence on the role of legal origin in shaping ESG performance. We argue that enhancing the relative importance of global factors — through harmonised ESG disclosure standards — can improve the consistency and predictive power of ESG ratings. Policy implications include the need for global mandatory reporting frameworks.

Suggested Citation

  • Xie, Ting & Chaudhuri, Kausik & Jin, Han & Shin, Yongcheol, 2026. "Systematic common components in ESG ratings across legal origins," International Review of Financial Analysis, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:finana:v:109:y:2026:i:c:s1057521925009019
    DOI: 10.1016/j.irfa.2025.104814
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    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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