Climate risk measures and main data providers

ESG (Environmental, Social, and Governance) ratings are becoming increasingly significant in guiding financial investment decisions. However, numerous studies have highlighted discrepancies in ESG ratings across different data providers, primarily due to variations in the methodologies they employ. To address this issue, we provide a summary of the key ESG data providers, focusing on two distinct aspects: ESG ratings for firms and ESG ratings for countries. These two topics are essential in empirical analysis to attempt to integrate both dimensions— firm and country—into the evaluation process for assessing whether they play a significant role in defining climate risk. Moreover, this integration aids in understanding the implications for climate risk premiums in the stock market. By considering both the firm and country dimensions, we can better capture the multifaceted nature of climate risk and its impact on investment outcomes. The purpose of this report is twofold: first, we retrieve information from websites concerning the ESG criteria and methodologies of major climate indicator data providers, evaluating their transparency and accountability, and highlighting the differences between public and private sources. Second, we focus on alternative measures of climate risk that should be used in empirical analysis. Indeed, ESG ratings at both the company and country levels are not the only measures of climate risk exposures. In particular, while ESG ratings or solely the Environmental dimension are often used to assess transition climate risk, they are less frequently applied to assess physical risk.