ESG (Environmental, Social, and Governance) data and ratings are generated from the needs of investors for company information. This information includes how companies use different forms of capital (natural resources, social resources, intellectual achievements, and financial capital) to provide products and services.

With the increasing use of ESG finance and ESG data in investment decision-making, the important factors for ESG data evaluation are as follows:

1.

Variety of data and measures. For the same group of companies, different data processing methods will cause company reports to show completely different results;

2.

Benchmarking. How the data provider defines the company’s peer group is critical to determining the company’s ranking.

3.

Data gaps. When ESG researchers and analysts deal with incoherent ESG data, different methods of filling data gaps will produce huge variables, leading to disagreements among data providers.

4.

Disagreements among ESG data providers. With the increase in public information, the differences between data providers will further increase. Research shows that companies that provide more ESG information will have greater differences in their ESG ratings.