ESG data has become more and more critical in finance over the last few years. In fact, in Europe, flows into ESG funds doubled in 2020 alone. However, the ratings diverge significantly from one data-provider to the other. How is that possible? Prof. Dr. Laura Marie Edinger-Schons and co-host Prof. Dr. Oliver Spalt, professor of financial market and financial institutions at the University of Mannheim, discussed the topic of ESG data with their guest Florian Berg, a researcher at the Massachusetts Instituteof Technology (MIT). Florian explains that the divergence in ratings can come from scope, weights, and measurement divergence and how different statistical approaches can reduce measurement noise. Moreover, Laura, Oliver, and Florian talk about how raters have different focuses, how the rater effect influences the ESG rating, and why transparency can help improve the measurement over time
