As investing based on environmental, social and governance factors continues to grow, investors are faced with a dilemma: Which ESG ratings are they to believe? After all, investors themselves have no idea which companies live up to ESG standards. Yet ESG ratings vary substantially depending on which provider is doing the ratings—to a point where a company could be highly rated with one rating company and have a very low score with another. The correlation between ESG ratings from the six raters my colleagues and I looked at ranged from 0.38 to 0.71, on a scale from minus 1 (meaning total disagreement) to 1 (meaning full agreement). In other words, the six never all agreed on a company’s ESG rating, and in most cases there was little agreement among them.

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