One of the hottest topics in the business world is ESG ratings, which are designed to measure the environmental, social, and governance risks of a company. The idea is that increased transparency about companies’ ESG risks will motivate those with a low scores to improve and at least match the performance of competitors with high scores. Yet research on whether these ratings actually work is surprisingly sparse.

In a new study, we examined how companies responded to some of the first ESG ratings in the early 1990s issued by KLD Research & Analytics (KLD), a pioneering ESG rating agency. Contrary … Read more