ESG Rating Divergence & Portfolio Consequences of Relying on a Single Rating Provider - A study conducted on companies in the Nordic region

Abstract: This thesis investigates how ESG ratings for Nordic companies vary between two ESG providers, and how the risk and expected return differs between two highly rated ESG portfolios according to the two providers. In doing so, we aim to contribute to research on the topic of ESG divergence as it is of great importance for investors that this subject is studied further. To achieve the purpose of this thesis, secondary data was gathered in terms of ESG ratings from two chosen providers, S&P Global and Refinitiv. Based on the collected data, a Spearman correlation analysis was performed as well as statistical investigations in Excel in order to examine the rating divergence between the two providers. Additionally, efficient frontier values of the two provider dependent portfolios were calculated using R Studio. The results found suggests that there is an evident ESG rating divergence amongst all companies examined, regardless of origin and industry. Furthermore, it was concluded that Refinitiv consistently rated companies higher than S&P Global. The comparison between the two provider dependent portfolios illustrates that relying on ESG ratings from different providers will result in different portfolio composition. In turn, this has an impact on investors seeking to implement ESG as a part of their investment strategy. The results indicate that the composition differences affects portfolio performance. This led to the conclusion that it is of great importance for investors to be aware of the existing divergence in order to make accurate investment decisions.