ESG to SDG: Do Sustainable Investing Ratings Align with the Sustainability Preferences of Investors, Regulators, and Scientists?

ESG and SDG cannot be used interchangeably to identify the sustainability of companies and their contribution to social development and the planet, although they are complementary.  Where sustainable investors aim to invest in companies that contribute to sustainable development, there is disagreement on how best to measure their sustainability performance.  SDG scores capture investors’ revealed social, economic and environmental sustainability preferences, align with the EU taxonomy regulation, and support climate change mitigation, unlike ESG ratings.  Whereas the ESG ratings have low construct validity, SDG ratings perform well in measuring companies’ positive and negative impacts on the well-being of people and the Earth and their contribution to sustainable development.