The ambiguity in green finance and ESG ratings: analyzing the impact of divergent methodologies used by rating agencies on financial market efficiency and company performance

The thesis investigates the divergences between ESG ratings and how these impact the efficiency of financial markets and companies’ performances. The first section develops an introduction towards the field of green finance and ESG ratings specifically. The main themes of the thesis are presented, highlighting the pivotal role of ESG ratings in fostering responsible investment decisions and how divergencies and contrasts in methodologies used to develop these ratings affect financial performance. The literature review section begins with an explanation of the ESG ratings scope and how they differ from the traditional credit ratings. It further analyzes the divergencies in ESG ratings and the complexity of its market. Rating agencies are presented with their methodologies and practices, underlying the need for greater transparency in the field considering the risks ahead. The methodology section defines the approach used to analyze ESG agencies methodologies and practices that lead to the final ratings and the consequently effects on financial markets. Through the section the challenges and opportunities in integrating sustainability metrics into investment decision making is highlighted. The results and data description part draws up the key findings derived from the previous sections. The effects of ESG ratings controversies and divergencies on corporate performance are reported through actual data and metrics. The study aims to identify areas for improvement in the field, proposing positive trends and opportunities for the future of environmental, social and governance ratings. In conclusion, the thesis analyzes the complex landscape of ESG rating agencies and its divergences, highlighting the consequent effects on corporate performance as regards both sustainable development and financial performance.