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Disaggregating confusion? The EU Taxonomy and its relation to ESG rating

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  • Dumrose, Maurice
  • Rink, Sebastian
  • Eckert, Julia

Abstract

This paper discusses the EU Taxonomy in the context of Environmental, Social, and Governance (ESG) ratings. ESG firm-level ratings tend to differ across ESG data providers, affecting investment decisions due to uncertainty about a firm's sustainability performance. We argue that the EU Taxonomy can support the reduction of this divergence. Using EU Taxonomy-related firm data in tobit regressions, we show that environmental ratings from three out of four ESG data providers are significantly related to the EU Taxonomy. However, our results suggest that the potential for reducing measurement divergence has not yet fully materialised. Our results have implications for investors, ESG data providers, and policy makers.

Suggested Citation

  • Dumrose, Maurice & Rink, Sebastian & Eckert, Julia, 2022. "Disaggregating confusion? The EU Taxonomy and its relation to ESG rating," Finance Research Letters, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001817
    DOI: 10.1016/j.frl.2022.102928
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    References listed on IDEAS

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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