Environmental, social and governance (ESG) ratings and ratings agencies have faced substantial criticism lately for a fair amount of mismeasurement and a lack of transparency in their procedures. Some are calling for a complete overhaul or abandonment of the ratings altogether.
In a new journal article – “The Signal in the Noise” – we argue that abandoning or standardising ESG ratings is not the answer. The ethical behaviour of firms remains essential to the health of economies, societies and the natural environment. And ESG ratings, though flawed, are currently still the best option to measure the ethical behaviour of firms. They can empower investors and other stakeholders to hold firms accountable.
