Abstract
Environmental, social and governance (ESG) rating agencies play a crucial economic and political role in the rise of sustainable investments. However, there are concerns that ESG rating agencies lack legitimacy for executing this role. This research introduces an interdisciplinary framework which is used to evaluate the legitimacy of ESG rating agencies. To evaluate the relevance and completeness of this interdisciplinary framework, and to explore the presence of legitimacy challenges for ESG rating agencies, seven semi-structured interviews with asset managers and experts are held. Based on these interviews, it is concluded that, from an interdisciplinary perspective, the legitimacy of ESG rating agencies can be researched by evaluating their (1) acceptance, (2) expertise, (3) transparency, (4) conflict of interest, (5) reputation costs, (6) monitoring, and (7) congruence with social objectives. The legitimacy of ESG rating agencies is mainly challenged due to a lack of transparency, reputation costs, monitoring processes, and conflict with social objectives.
Lessons for Practice
Keywords: sustainability, legitimacy challenges, ESG rating agencies
Citation: Scholten, S. (2023). The Legitimacy of ESG Rating Agencies. An Interdisciplinary Perspective. Public Note, 10(2), 14-20.
Environmental, social and governance (ESG) rating agencies play a crucial economic and political role in the rise of sustainable investments. However, there are concerns that ESG rating agencies lack legitimacy for executing this role. This research introduces an interdisciplinary framework which is used to evaluate the legitimacy of ESG rating agencies. To evaluate the relevance and completeness of this interdisciplinary framework, and to explore the presence of legitimacy challenges for ESG rating agencies, seven semi-structured interviews with asset managers and experts are held. Based on these interviews, it is concluded that, from an interdisciplinary perspective, the legitimacy of ESG rating agencies can be researched by evaluating their (1) acceptance, (2) expertise, (3) transparency, (4) conflict of interest, (5) reputation costs, (6) monitoring, and (7) congruence with social objectives. The legitimacy of ESG rating agencies is mainly challenged due to a lack of transparency, reputation costs, monitoring processes, and conflict with social objectives.
Lessons for Practice
- The legitimacy of ESG rating agencies is mainly threatened by a lack of transparency, reputation costs, monitoring process and incongruence with social objectives.
- The legitimacy of ESG rating agencies could be significantly improved by enhancing installing (public) monitoring processes.
- ESG ratings are not necessarily used for, and thereby not developed for, having a positive ESG impact on the world, but are rather used to minimize financial damage due to ESG events.
Keywords: sustainability, legitimacy challenges, ESG rating agencies
Citation: Scholten, S. (2023). The Legitimacy of ESG Rating Agencies. An Interdisciplinary Perspective. Public Note, 10(2), 14-20.
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