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Disaggregating confusion? The EU Taxonomy and its relation to ESG rating

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  • Dumrose, Maurice
  • Rink, Sebastian
  • Eckert, Julia

Abstract

This paper discusses the EU Taxonomy in the context of Environmental, Social, and Governance (ESG) ratings. ESG firm-level ratings tend to differ across ESG data providers, affecting investment decisions due to uncertainty about a firm's sustainability performance. We argue that the EU Taxonomy can support the reduction of this divergence. Using EU Taxonomy-related firm data in tobit regressions, we show that environmental ratings from three out of four ESG data providers are significantly related to the EU Taxonomy. However, our results suggest that the potential for reducing measurement divergence has not yet fully materialised. Our results have implications for investors, ESG data providers, and policy makers.

Suggested Citation

  • Dumrose, Maurice & Rink, Sebastian & Eckert, Julia, 2022. "Disaggregating confusion? The EU Taxonomy and its relation to ESG rating," Finance Research Letters, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001817
    DOI: 10.1016/j.frl.2022.102928
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    References listed on IDEAS

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    Cited by:

    1. Jian Zhou & Xiaodong Lei & Jianglong Yu, 2024. "ESG rating divergence and corporate green innovation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 2911-2930, May.
    2. Niu, Bingcheng, 2024. "Government environmental protection expenditure and national ESG performance: Global evidence," Innovation and Green Development, Elsevier, vol. 3(2).
    3. Essossinam Beguedou & Satyanarayana Narra & Ekua Afrakoma Armoo & Komi Agboka & Mani Kongnine Damgou, 2023. "Alternative Fuels Substitution in Cement Industries for Improved Energy Efficiency and Sustainability," Energies, MDPI, vol. 16(8), pages 1-29, April.
    4. Wang, Haijun & Jiao, Shuaipeng & Ge, Chen & Sun, Guanglin, 2024. "Corporate ESG rating divergence and excess stock returns," Energy Economics, Elsevier, vol. 129(C).
    5. Huang, Jun & Han, Feifei & Li, Yun, 2023. "Government as major customer: The effects of government procurement on corporate environmental, social, and governance performance," Finance Research Letters, Elsevier, vol. 54(C).
    6. Hoepner Andreas G. F. & Schneider Fabiola I., 2022. "EU Green Taxonomy Data – A First Vendor Survey," The Economists' Voice, De Gruyter, vol. 19(2), pages 229-242, December.
    7. Dina Lucia Todaro & Riccardo Torelli, 2024. "From greenwashing to ESG‐washing: A focus on the circular economy field," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4034-4046, September.
    8. Zou, Jin & Yan, Jingzhou & Deng, Guoying, 2023. "ESG rating confusion and bond spreads," Economic Modelling, Elsevier, vol. 129(C).
    9. Andre Höck & Tobias Bauckloh & Maurice Dumrose & Christian Klein, 2023. "ESG criteria and the credit risk of corporate bond portfolios," Journal of Asset Management, Palgrave Macmillan, vol. 24(7), pages 572-580, December.
    10. Höck, André & Bauckloh, Michael Tobias & Dumrose, Maurice & Klein, Christian, 2023. "ESG criteria and the credit risk of corporate bond portfolios," CFR Working Papers 23-03, University of Cologne, Centre for Financial Research (CFR).
    11. Patrizia Tettamanzi & Riccardo Gotti Tedeschi & Michael Murgolo, 2024. "The European Union (EU) green taxonomy: codifying sustainability to provide certainty to the markets," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(11), pages 27111-27136, November.
    12. Konstantina Ragazou & Ioannis Passas & Alexandros Garefalakis & Eleni Zafeiriou & Grigorios Kyriakopoulos, 2022. "The Determinants of the Environmental Performance of EU Financial Institutions: An Empirical Study with a GLM Model," Energies, MDPI, vol. 15(15), pages 1-15, July.

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    More about this item

    Keywords

    Environmental; Social and governance (ESG); ESG investing; ESG ratings; EU taxonomy; Climate change; Uncertainty; Cost of capital; Capital allocation;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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