ESG risk rating disagreement: implications on portfolio performance

Abstract

This paper examines the ESG risk rating disagreement across two-well established rating providers and its implication on portfolio performance. By deriving a proxy for rating disagreement using the average standard deviation of pairwise percentile ranking across Refinitiv and Sustainalytics, this study examined the risk-adjusted performance of high and low disagreement portfolios. For each portfolio, four risk-adjusted measures (Sharpe ratio, Treynor ratio, Modigliani- Squared and Jensen’s alpha) were calculated. In general, the study found that the best performer was the low-disagreement portfolio, but the results were not favourable for any portfolio.

Keywords

• esg disagreement
• portfolio performance
• risk-adjusted measures
• industry
• europe