Assessing Corporate Sustainability Through Ratings: Challenges and Their Causes

TLDR: In this article, the authors systematize the challenges that corporate sustainability ratings face: lack of standardization, lack of credibility of information, bias, tradeoffs and lack of transparency, and suggest possible ways to improve the reliability of ratings.

Abstract: Assessing corporate sustainability is increasingly practice-relevant, not least because the capital market and other markets have been paying growing attention to the topic. Recently, ratings have become an important assessment approach and nowadays a variety of organizations and financial service providers conduct their own ratings. Yet, despite their growing popularity, ratings are criticized in research and practice. Thus, the purpose of this paper is to systematize the challenges that corporate sustainability ratings face: lack of standardization, lack of credibility of information, bias, tradeoffs, lack of transparency, and lack of independence. Furthermore, the paper discusses the causes of these challenges and suggests possible ways to improve the reliability of ratings.