ESG RATINGS AND THE INVESTOR DECISION-MAKING PROCESS: A COMPARATIVE ANALYSIS OF RATING AGENCIES DATA AND ITS EFFECT ON FINANCIAL PERFORMANCE

Abstract

Purpose- The purpose of this study is to engage in scholarly research in order to examine the correlation between environmental, social, and governance performance (ESGP) and financial performance (FP) across various industries. The aim is to enhance the overall comprehension of how variations in ESG scores from two rating agencies can potentially impact the relationship between ESGP and FP. Methodology- This study undertakes a comparative and descriptive analysis of panel data comprising 464 companies operating in environmentally sensitive sectors worldwide. The dataset covers the period from 2011 to 2020 and incorporates ESG ratings from Bloomberg and Refinitiv databases, as well as the financial performance metric return on assets (ROA) sourced exclusively from Refinitiv covering the times series of 2012 to 2021. Findings- According to our research, there is evidence of a relationship between ESG scores and return on assets (ROA), with distinct correlations depending on the rating agencies employed. Specifically, Refinitiv ESG scores demonstrate a negative correlation with ROA, while Bloomberg ESG scores reveal a positive correlation. Additionally, our study highlights a positive correlation specifically between the Bloomberg environmental score and ROA. Conclusion- Previous scholarly studies have already established a correlation between the level of information disclosure displayed by corporations and the aforementioned matter being investigated. However, our research suggests that the varying findings documented in existing academic papers may also stem from the utilization of ESG score data sourced from various rating agencies. Keywords: ESG performance, financial performance, ROA, panel data analysis, rating agencies JEL Codes: Q56, G24, C33