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ESG Ratings and Financial Markets: Evidence, Measurement Noise and Misinterpretations

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  • Karoly Gasteiger

    (University of Pecs)

Abstract

This essay examines the measurement limitations that arise when ESG ratings are interpreted as financial information. It argues that composite ESG scores should not be treated as stable risk factors, but rather as information signals shaped by provider-specific methodologies, data sources, disclosure practices and aggregation choices. This essay discusses the separation between disclosure and actual ESG outcomes, the model risk created by rating divergence, and the frequent misinterpretation of the green premium and ESG performance. From a banking perspective, the implication is not to discard ESG information, but rather to use external ESG data with discipline. Without financial materiality, data quality controls, exposure-based assessments and internal governance, ESG cannot serve as a defensible input in financial decision-making.

Suggested Citation

  • Karoly Gasteiger, 2026. "ESG Ratings and Financial Markets: Evidence, Measurement Noise and Misinterpretations," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 25(2), pages 159-177.
    • Handle: RePEc:mnb:finrev:v:25:y:2026:i:2:p:159-177
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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