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

While ESG and SDG are complementary, they cannot be used interchangeably to identify the sustainability of companies and their contribution to social development and the planet.  Where sustainable investors aim to invest in companies that contribute to sustainable development, there is disagreement on how best to measure their sustainability performance.  Unlike ESG ratings, SDG scores capture investors’ revealed social, economic and environmental sustainability preferences, align with the EU taxonomy regulation, and support climate change mitigation.  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.