Harvard Business School’s “What Does an ESG Score Really Say About a Company?” reports on a recent study revealing that more corporate ESG disclosure is associated with increased variations among ESG scores issued by major ratings providers. More specifically, a 10% increase in disclosure purportedly correlates with a 1.3% - 2% increase in ESG score variations; increasing ESG disclosure from the 25th to the 75th percentile is generally associated with a 22% - 31% increase in “ESG disagreement” among ratings. The article notes (based on the research) that greater variability among ratings triggers higher stock return volatility and larger stock price swings.
See our recent reports: “ESG Ratings & Rankers: Insights and Practical Recommendations” and “ESG Ratings are in the Eye of the Beholder”; our discussion on this topic in the Society’s Comment Letter in response to former Acting Chair Allison Herren Lee’s request for public input on climate disclosure; and additional information & resources on our Sustainability page - Ratings/Raters. This post first appeared in the weekly Society Alert!