Divergence of ESG Ratings: International and Russian Experience

Abstract

ESG rating is an important indicator of a company’s social responsibility, which is taken into account by investors and regulators. However, if the ESG rating is calculated incorrectly, investors and regulators will make erroneous decisions and companies will be given improper guidance about how to modify their operations. Currently, there is a serious methodological problem in that ESG ratings from various rating agencies can be significantly different for the same company. Two of the most urgent questions in current ESG research are why these differences come about and how critical the divergence of ratings is. First, the article reviews international research on rating divergence and summarizes the findings. A similar analysis is then performed to compare the methodologies and rating results of three leading Russian ESG rating providers — RSPP, RAEX, and NRC — for 2020-2021. The results indicate that Russian rating agencies are somewhat more divergent in their assessments of companies than international ones (Krippendorff’s alpha for Russian ratings is 0.4, but for non-Russian ratings it is 0.55), and Russian agencies’ coverage of ESG components is less comprehensive than that of the other rating agencies (although coverage in the RAEX methodology is close to the average of the international equivalents). The article also analyzes the distribution of companies across different gradations of the ratings by the three Russian agencies and attributes the distinctions that emerge to the way the ratings are calculated and the general ideology of the agency. Comparison of average ratings for different industries by different agencies indicates that these ratings are also rather inconsistent.