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Does Size Matter? An Investigation into ESG Rating Bias Against Small Firms

Johansson, Axel LU (2023) NEKH02 20231
Department of Economics
Abstract
This thesis explores biases against smaller firms in environmental, social, and governance (ESG) ratings. The study investigates the relationship between firm size and ESG scores, considering sector-specific dynamics, regional variations, and the impact of ESG disclosures. The analysis was conducted on Nordic stock market firms (Sweden, Norway, Finland, Denmark, and Iceland). The findings confirm that larger companies tend to achieve higher ESG scores, highlighting potential biases against smaller firms. The positive association between firm size and ESG pillar scores further reinforces this trend. The higher scores can be attributed, in part, to the more significant resources that larger firms possess. The study reveals that larger firms... (More)
This thesis explores biases against smaller firms in environmental, social, and governance (ESG) ratings. The study investigates the relationship between firm size and ESG scores, considering sector-specific dynamics, regional variations, and the impact of ESG disclosures. The analysis was conducted on Nordic stock market firms (Sweden, Norway, Finland, Denmark, and Iceland). The findings confirm that larger companies tend to achieve higher ESG scores, highlighting potential biases against smaller firms. The positive association between firm size and ESG pillar scores further reinforces this trend. The higher scores can be attributed, in part, to the more significant resources that larger firms possess. The study reveals that larger firms disclose more ESG factors, which positively correlates with higher ESG scores. The biases against smaller firms can restrict their access to investments and growth opportunities. We argue that rating agencies should re-evaluate their methodologies and consider separate categories or criteria for smaller firms to address biases and support smaller firms. Government assistance in identifying critical ESG factors and providing support and collaboration between stakeholders is essential to achieve fair evaluations and promote responsible investment practices. In summary, the study contributes to understanding biases in ESG ratings and advocates for a more inclusive and comprehensive sustainability performance assessment. (Less)
Popular Abstract
This thesis explores biases against smaller firms in environmental, social, and governance (ESG) ratings. The study investigates the relationship between firm size and ESG scores, considering sector-specific dynamics, regional variations, and the impact of ESG disclosures. The analysis was conducted on Nordic stock market firms (Sweden, Norway, Finland, Denmark, and Iceland). The findings confirm that larger companies tend to achieve higher ESG scores, highlighting potential biases against smaller firms. The positive association between firm size and ESG pillar scores further reinforces this trend. The higher scores can be attributed, in part, to the more significant resources that larger firms possess. The study reveals that larger firms... (More)
This thesis explores biases against smaller firms in environmental, social, and governance (ESG) ratings. The study investigates the relationship between firm size and ESG scores, considering sector-specific dynamics, regional variations, and the impact of ESG disclosures. The analysis was conducted on Nordic stock market firms (Sweden, Norway, Finland, Denmark, and Iceland). The findings confirm that larger companies tend to achieve higher ESG scores, highlighting potential biases against smaller firms. The positive association between firm size and ESG pillar scores further reinforces this trend. The higher scores can be attributed, in part, to the more significant resources that larger firms possess. The study reveals that larger firms disclose more ESG factors, which positively correlates with higher ESG scores. The biases against smaller firms can restrict their access to investments and growth opportunities. We argue that rating agencies should re-evaluate their methodologies and consider separate categories or criteria for smaller firms to address biases and support smaller firms. Government assistance in identifying critical ESG factors and providing support and collaboration between stakeholders is essential to achieve fair evaluations and promote responsible investment practices. In summary, the study contributes to understanding biases in ESG ratings and advocates for a more inclusive and comprehensive sustainability performance assessment. (Less)
Please use this url to cite or link to this publication:
author
Johansson, Axel LU
supervisor
organization
course
NEKH02 20231
year
type
M2 - Bachelor Degree
subject
keywords
ESG ratings, biases, firm size, sustainability, ESG scores
language
English
id
9119250
date added to LUP
2024-01-22 15:43:58
date last changed
2024-01-22 15:43:58
@misc{9119250,
  abstract     = {{This thesis explores biases against smaller firms in environmental, social, and governance (ESG) ratings. The study investigates the relationship between firm size and ESG scores, considering sector-specific dynamics, regional variations, and the impact of ESG disclosures. The analysis was conducted on Nordic stock market firms (Sweden, Norway, Finland, Denmark, and Iceland). The findings confirm that larger companies tend to achieve higher ESG scores, highlighting potential biases against smaller firms. The positive association between firm size and ESG pillar scores further reinforces this trend. The higher scores can be attributed, in part, to the more significant resources that larger firms possess. The study reveals that larger firms disclose more ESG factors, which positively correlates with higher ESG scores. The biases against smaller firms can restrict their access to investments and growth opportunities. We argue that rating agencies should re-evaluate their methodologies and consider separate categories or criteria for smaller firms to address biases and support smaller firms. Government assistance in identifying critical ESG factors and providing support and collaboration between stakeholders is essential to achieve fair evaluations and promote responsible investment practices. In summary, the study contributes to understanding biases in ESG ratings and advocates for a more inclusive and comprehensive sustainability performance assessment.}},
  author       = {{Johansson, Axel}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Does Size Matter? An Investigation into ESG Rating Bias Against Small Firms}},
  year         = {{2023}},
}