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ESG principles: the limits to green benchmarking

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  • DiMaria, charles-henri

Abstract

Taxonomy and efficiency assessments provide financial intermediaries (FIs) with guidance to grant funds according to the Environmental, Social and Governance principles. The EBRD provides a classification of industries according to a priori potential risk (low, medium or high). Using a panel of 28 industries in Luxembourg (2008-2019) and National Account data (NA), we challenge this taxonomy. We compute Data Envelopment Analysis (DEA) efficiency scores indicating if an industry could increase output while simultaneously lowering the emission of greenhouse gases. Our results show that EBRD low risk industries are the most efficient ones. Surprisingly, high-risk industries are more efficient than medium-risk ones, suggesting a potential unintended outcome of the EBRD taxonomy—limiting credit to industries classified as high risk that are in fact more efficient than industries classified as medium risk.

Suggested Citation

  • DiMaria, charles-henri, 2024. "ESG principles: the limits to green benchmarking," MPRA Paper 120410, University Library of Munich, Germany, revised 2024.
    • Handle: RePEc:pra:mprapa:120410
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    More about this item

    Keywords

    EBRD Risk taxonomy; Social acceptance; efficiency; bad output; credit rationing; ESG;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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