A Non-distortionary Sustainability Benchmark

This thesis offers a thorough insight into the ESG world. It investigates in depth the current state of ESG disclosures and analyses the methodologies of the most influential ESG rating agencies to understand what the limits of ESG rankings are. In particular, it contributes to analyse a particular type of bias in the ESG Ratings that literature has not yet studied in-depth: country-by-country taxation. In the time since the height of the global financial crisis, the tax world has changed significantly. Demand for more tax transparency is rising in tandem with public scrutiny and judgment about how much tax businesses pay. This study describes the controversial and ambiguous role of taxation in ESG frameworks and proposes an original country-by-country benchmark that, integrated into current ESG models, can solve the taxation bias. In detail, our non-distortionary sustainability benchmark aims to account for the indirect ESG effect of companies on society. Each country receives a score based on the corporate tax rate, public social spending and environmental spending. These scores are integrated into a single value for each company depending on the "profit before tax" geographical distribution. This model can also be used on its own to rank companies based solely on their indirect ESG contribution to the society. In the second part of our paper, a case study on the banking sector is conducted to show the possible applications of the Non-distortionary sustainability benchmark. The results highlight the strong differences that there are between European countries and the importance of the country in which a bank is based on determining the final ESG score. Furthermore, the case study has another objective. It shows that ESG regulations have so far been inadequate. The lack of a set of global principles for ESG reporting for companies makes it difficult to find key non-financial data to compute ESG scores. As a result, today it is very complex to draw up a country-by-country ranking, especially for small and medium-sized companies that operate in countries that do not encourage companies to report on ESG issues. World authorities have not had the time to implement concrete regulations at ESG level. However, we expect that in the coming years they will be able to fill this gap. In the meantime, we hope that our work is a step forward for the creation of a non-distortionary sustainability benchmark that will contribute to increase sustainability globally.