Can environmental, social, and governance rating agencies favor business models that promote a more sustainable development?

Abstract

The development of sustainable finance favors the appearance of environmental, social, and governance (ESG) rating agencies as providers of ESG information and tools for measuring the contribution of companies to sustainable development. This paper attempts to show whether assessment methods adopted by eight ESG agencies are consistent with the Integrative ESG Sustainable Value Framework proposed according to the literature and sustainable business models (SBMs) conceptualization.An exploratory research analyzes whether these methods are identifying and/or driving more SBMs that contribute to promote the creation of sustainable value, seeking to generate economic, social, and environmental value. Results indicate that ESG rating agencies identify the short-term results in the internal organizational perspective mainly in the environmental dimension, whereas social aspects are emphasized from the external organizational perspective. However, ESG rating agencies are not driving a more SBMs that must integrate ESG criteria in a holistic way with a short-term and long-term perspective. KEYWORDS corporate sustainability (CS), environmental, social and governance (ESG) rating agencies, sustainable and responsible investment (SRI), sustainable business models (SBMs), sustainable development, sustainable value creation

A holistic approach to manage environmental quality by using the Kano model and social cognitive theory

“…Moreover, integration of value‐based environmental management into an enterprise shows the creation of long‐term enterprise value and aid to the resilience of this enterprise to various social and environmental shocks (Figge, ). As given by Muñoz‐Torres, Fernández‐Izquierdo, Rivera‐Lirio, and Escrig‐Olmedo (), currently, agencies that use environmental, social, and governance rating for enterprises usually identify short‐term environmental performance from the perspective of the firm's internal organization and social aspects based on the firm's external judgment, and new tools are needed to account for these all factors in a holistic manner. Finally, Pipatprapa, Huang, and Huang () emphasize that an enterprise manager has to understand the social requirement of concern for environmental protection; hence, tools to assist managers' decision making on environmental evaluation and social aspects are needed.…”

Rating the Raters: Evaluating how ESG Rating Agencies Integrate Sustainability Principles

“…The main findings of this paper allow us to understand the integration of sustainability principles into the financial markets system and to extend the prior insights from Escrig-Olmedo et al [7] that present an overview on the different assessment criteria adopted by sustainability indices and ESG rating agencies; Avetisyan and Hockerts [4] explain the causes and impact of the ESG rating agency consolidation process, and Muñoz-Torres et al [9] analyze whether assessment methods employed by ESG agencies are identifying and/or driving more sustainable business models.…”

“…Previous studies have already been conducted with the aim of analyzing the historical evolution, growth and consolidation of ESG rating agencies and their strategies [3,4], their assessment frameworks and weighing systems [5][6][7][8]. Moreover, the question regarding the implications in terms of the definition of corporate sustainability derived from the criteria adopted by ESG rating agencies has previously been addressed [9], by analyzing their contribution to more sustainable business models. However, to our knowledge, the analysis of their efforts to achieve adequate sustainable development has not yet been analyzed.…”

Dirty Banking: Probing the Gap in Sustainable Finance

“…The former is widely recognised by scholars as a central source of inspiration for later forms of finance-led activism (see, for instance, [27,57,58]). In later phases, as niche innovations find wider acceptance, they start competing with the established regime or can be co-opted by incumbents-the increasing ubiquity of investments labelled SRI [23], ESG indices, and rating agencies [59] are good examples of the latter dynamic. Sustainable finance is thought to emerge as an alternative socio-technical regime as disparate niche innovations breakthrough and are linked together into a cohesive proposition that challenges the existing regime of mainstream finance.…”