Introduction.

This article is a commentary on the paper "ESG metrics and social equity: Investigating commensurability," co-authored by Keeley Alexander Ryuta, Chief Researcher at aiESG, Hidetaro Takeda, Chief Scientific Advisor, and Shunsuke Managi, Representative Director of aiESG. Social equity: Investigating commensurability". 

This article provides an easy-to-understand explanation of the research and the services provided by aiESG.
If you are interested in ESG data analysis and strategy development, please read to the end.

Title of paper: ESG metrics and social equity: Investigating commensurability
DOI (paper link):https://doi.org/10.3389/frsus.2022.920955

Research Points/Summary

This study clarified the variation in ESG evaluations and disclosure issues, as well as the impact of ESG indicators on corporate profitability. analysis of data provided by ESG evaluation agencies confirmed that the evaluation criteria of different agencies vary widely in ESG overall, especially in the S indicator. We also examined 80 papers on ESG and corporate value and showed that ESG investments can be expected to provide stable and high returns over the long term.

Background and Objectives

In recent years, ESG investment, which involves investing from an environmental, social, and corporate governance (ESG) perspective, has been expanding globally. While interest in society (S) in particular is growing, the disorder of disclosure standards for ESG information and the lack of consistency in ESG evaluations have become problematic. This study aims to analyze the evaluation standards of different evaluation agencies and to demonstrate the impact of ESG indicators on corporate profitability.

analysis

Two analyses were conducted in this study

1.      Comparison of ESG rating agency databases
We compared data used by four leading ESG assessment organizations covering approximately 8,000 companies worldwide to investigate similarities in assessment factors, scoring methods, and correlations between scores.

2.      Systematic Review of Corporate Value and ESG
We analyzed 80 eligible articles identified from top journals in the field of finance to examine the relationship between ESG scores and financial indicators (ROA, ROE, and Tobin's Q).

result

The analysis of this study yielded the following two main findings

1.    Differences in definitions of indicators and evaluation criteria among ESG assessment organizations
In addition, the correlation coefficients for integrated ESG scores were low, ranging from 0.318 to 0.549, indicating that there were cases in which scores differed significantly from one evaluation organization to another, even for the same company. In addition, the correlation coefficients of the integrated ESG scores were low, ranging from 0.318 to 0.549. (Figure 1)

2. the impact of ESG indicators on corporate performance
While the results confirmed a generally positive impact with respect to short-term financial indicators such as ROA and ROE, the results differed depending on which evaluation agency's score was used. Tobin's Q, an indicator of medium- to long-term corporate value, showed a stable positive impact regardless of which ESG evaluation agency was used. (Figure 2)

consideration

The results of this study reveal that a lack of consistency in ESG assessment and inconsistency in assessment criteria are key issues. This highlights the difficulty for investors to objectively assess a company's ESG performance. The results also indicated that the short-term impact of ESG on financials is generally positive and may have a stable positive impact over the long term, but the scoring needs to be improved and further data accumulated on the short-term impact.

summary

This study reveals the challenges of consistency in ESG assessment, the importance of information disclosure, and the impact of ESG indicators on a company's short- and long-term profitability.This study suggests that it is important for companies to view ESG indicators not only as evaluation indicators but also as important tools for improving corporate value. This research suggests that it is important for companies to view ESG indicators as an important tool for improving corporate value, not just an evaluation indicator. aiESG Inc. provides comprehensive support for quantitative ESG assessments, ESG-related regulatory compliance, and specific assistance for individual companies.

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