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

A new article by University of Pavia has been published in Corporate Social Responsibility and Environmental Management journal

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 andmetrics 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 amethod 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 sus-tainability as a driver of companies' credit rating, thereby reducing information asymmetries

 

Find the full article here!