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How to combine ESG scores? A proposal based on credit rating prediction

Author

Listed:
  • Arianna Agosto
  • Paolo Giudici
  • Alessandra Tanda

Abstract

The diffusion of Environmental, Social and Governance (ESG) metrics is increasingly affecting corporates behaviour and their ability to attract investors. Corporate ESG practices are nowadays considered as a key element in evaluating creditworthiness and the cost of capital, to direct funds to the best‐performing companies that limit the harmful impact on the planet and the societies. Due to this increased interest in ESG by companies, investors and policymakers, a high number of ESG scores and metrics have been developed, each with different methodologies and scopes. Because of this variety, it could be therefore challenging for investors to understand and compare ESG measures. In this paper, we address this issue by proposing a method to combine the information provided by different ESG scores into a single aggregate measure of company sustainability and link this combined score to the credit rating of companies. The proposed methodology can help investors to improve their investment decisions by combining more diverse information on company sustainability as a driver of companies' credit rating, thereby reducing information asymmetries.

Suggested Citation

  • Arianna Agosto & Paolo Giudici & Alessandra Tanda, 2023. "How to combine ESG scores? A proposal based on credit rating prediction," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 3222-3230, November.
    • Handle: RePEc:wly:corsem:v:30:y:2023:i:6:p:3222-3230
    DOI: 10.1002/csr.2548
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    References listed on IDEAS

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    1. Wu, Shilei & Zhou, Fu-You & Si, Deng-Kui & Hao, Jiawei, 2025. "Does ESG rating policy reduce corporate risk-taking? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    2. Arianna Agosto & Antonio Balzanella & Paola Cerchiello, 2025. "Aggregating ESG scores: a Wasserstein distance-based method," DEM Working Papers Series 228, University of Pavia, Department of Economics and Management.
    3. Ge Ren & Ping Zeng & Xi Zhong, 2024. "Differentiation strategies and firms' environmental, social and governance: The different moderating effects of historical and social performance shortfalls," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 719-740, January.

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