The Divergence of ESG Ratings: An Analysis of Italian Listed Companies

The increasing attention to sustainability issues in finance has brought to a proliferation of environmental, social, and governance (ESG) metrics and rating providers that results in divergences among ESG ratings. Based on a sample of Italian listed firms, this paper investigates these divergences through a framework that decomposes ESG ratings in a value and a weight component at the pillar (i.e., E, S, G) and category (i.e., sub-pillar) level. We find that weights divergence, and social and governance indicators are the main driver of rating divergences. The research contributes to develop a new tool for analyzing ESG divergences and provides a number of recommendations for researchers and practitioners, stressing the need to understand what is really measured by ESG rating agencies and the need of standardization and transparency of ESG measurement to favor a more homogeneous set of indicators.