We analyze the ESG rating criteria used by prominent agencies and show that there is a lack of a commonality in the definition of ESG (i) characteristics, (ii) attributes and (iii) standards in defining E, S and G components. We provide evidence that heterogeneity in rating criteria can lead agencies to have opposite opinions on the same evaluated companies and that agreement across those providers is substantially low. Those alternative definitions of ESG also affect sustainable investments leading to the identification of different investment universes and consequently to the creation of different benchmarks. This implies that in the asset management industry it is extremely difficult to measure the ability of a fund manager if financial performances are strongly conditioned by the chosen ESG benchmark. Finally, we find that the disagreement in the scores provided by the rating agencies disperses the effect of preferences of ESG investors on asset prices, to the point that even when there is agreement, it has no impact on financial performances. 

Environmental, social, and governance (ESG) factors have gained significant attention and are now a common practice in corporate risk assessment. Nevertheless, the absence of universally accepted standards for measuring ESG risk and impact, along with the difficulty of identifying the materiality of ESG aspects, makes assessing ESG ratings challenging. This paper aims to review the state-of-the-art literature on studies that describe and evaluate ESG rating methodologies and the impact of ESG factors on credit risk, debt and equity costs, and sovereign bonds. We also expand on the topic of ESG research by including a literature strand that focuses on the impact of climate change on financial stability. The reviewed studies suggest that positive ESG ratings are associated with an improvement in credit ratings, a reduction in credit default swap spreads, and a decrease in the costs of equity capital and debt. Finally, we consider the literature discussing the currently predominant sustainable investment (SI) strategies (negative screening and divestment) and their real limited effectiveness, but also suggesting several potential solutions for more appropriate SI strategies, a clearer standardized definition of climate change risk, a better alignment between private profit and social welfare and mostly an ESG focus on outcomes rather than on activities. With regard to the relationship between climate change and credit risk, the literature agrees on the need for adequate scoreboards and an improved disclosure process to address the problem of insufficient data availability and data quality. 

This literature survey explores the potential avenues for the design of a green auto asset-backed security by focusing on the European auto securitization market. In this context, we examine the entire value chain of the securitization process to understand the incentives and interests involved at various stages of the transaction. We review recent regulatory developments, feasibility concerns, and potential designs of a sustainable securitization framework. Our study suggests that a Green Auto ABS should be based on both a green use of proceeds and a green collateral-based methodology. 

In this study, we unpack the ESG ratings of four prominent agencies in Europe and find that (i) each single E, S, G pillar explains the overall ESG score differently, (ii) there is a low co-movement between the three E, S, G pillars and (iii) there are specific ESG Key Performance Indicators (KPIs)  that are driving these ratings more than others. 

We argue that such discrepancies might mislead firms about their actual ESG status, potentially leading to cherry-picking areas for improvement, thus raising questions about the accuracy and effectiveness of ESG evaluations in both explaining sustainability and driving capital toward sustainable companies.

The most important determinant for the existence of a Green premium is the perceived" Green--credibility" of a bond and its issuer. We analyze a sample of more than 1,500 Green bonds with respect to their pricing on the primary and secondary market. On both markets, only certain types of bonds trade at a Green premium (ie, exhibit lower yields) relative to their conventional counterparts, namely those, which are issued by governments or supranational entities, denominated in EUR, or corporate bonds with very large issue sizes. These bonds and their issuers seem to be viewed as more credible in terms of a better implementation or a greater impact of the Green projects financed with the proceeds. For corporate issues, credibility of the Green label is of particular importance. Investors are more likely to pay a premium for a Green bond, when it is certified as such by a third party, or when it is listed on an exchange with a dedicated Green bond segment and tight listing requirements. 

 We study how mutual funds contribute to financing the transition to zero- or low-emission vehicles (ZLEVs) in Europe. Hand-collected data uncover three novel types of sustainability measures for auto asset-backed securities (Auto ABS) based on prospectus-, loan-, and manufacturer-level sustainability information. We find that green funds tend to tilt their exposure to sustainability-transparent Auto ABS and invest marginally more in deals with a higher proportion of ZLEVs in the underlying collateral pool. However, in the absence of a globally accepted framework for green securitizations, asset managers use sustainability proxies that are associated with the lowest disclosure processing costs.

This is my first project in experimental economics, where we aim to explore how well ESG rating methodologies align with public preferences in Germany. Specifically, we investigate how participants navigate the trade-offs between social and environmental pillars. To address these questions, we will conduct an experiment across three waves, each involving 5,000 participants living in Germany. Our study simplifies the ESG landscape by focusing on the six objectives outlined in the European Action Plan: Climate Change, Water, Reduced Inequalities, Biodiversity, Human Rights, and Pollution and Air Quality. We aim to answer the following research questions: (i) How are these KPIs ranked in terms of public preferences in Germany?, (ii) What is the monetary magnitude of these preferences? (iii) How sensitive are participants to the impact of these KPIs? (iv) Are substitution effects stronger within pillars or across pillars? (v) What are the marginal rates of substitution between KPIs and pillars? (vi) What patterns of substitution do participants exhibit? Through this study, we hope to provide insights into public preferences and the potential alignment or misalignment with ESG rating methodologies in the context of evolving European regulations.

In this paper, we examine the impact of one of Europe’s most intriguing sustainable finance regulations, the Sustainable Finance Disclosure Regulation (SFDR). The SFDR categorizes investment funds into three groups based on their sustainability approach: Article 6 funds, which do not incorporate sustainability into their investment processes; Article 8 funds, which promote environmental or social characteristics; and Article 9 funds, which are specifically dedicated to sustainable investment objectives. We provide evidence that this classification was perceived by the market as a rating system. Hence, our analysis focuses on the effect of this fund reclassification on net inflows. Additionally, by examining portfolio composition, we investigate whether funds adjust their portfolios after shifting their classification.

In this paper, we examine how the European regulatory framework on sustainable finance is influencing supervisory activities and shaping the emerging ESG data ecosystem. The insights provided hold significant policy implications, as they could serve as guidelines or best practice references for National Competent Authorities.