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Week 3 of eight in the Green Finance Professional Certificate, 108 contact hours for finance professionals, taught at the University of Twente and published by the Erasmus+ GREEN FINANCE project under CC BY 4.0. The project's second programme, the micro-credential, is five modules and 30 lessons worth 4 credits in the European Credit Transfer and Accumulation System (ECTS).

Week 3: ESG Integration

Learning Goals

  1. Understand ESG rating methodologies and provider landscape
  2. Analyse rating divergence and its implications for portfolio construction
  3. Apply ESG screening strategies to build sustainable portfolios

Topics Covered

  • Major ESG rating providers (MSCI, Sustainalytics, S&P)
  • Rating methodology comparison
  • Rating divergence analysis
  • Screening strategies (negative, positive, best-in-class)
  • ESG factor integration
  • Portfolio construction techniques

Reading

The divergence figures on slide 7 of the deck, an average correlation of 0.54 between rating providers against 0.99 for credit ratings, and a split of the disagreement into measurement (56%), scope (38%) and weight (6%), are those reported in the first paper below.

  • Berg, F., Kolbel, J. F., & Rigobon, R. (2022). Aggregate confusion: the divergence of ESG ratings. Review of Finance, 26(6), 1315-1344.
  • Christensen, D. M., Serafeim, G., & Sikochi, A. (2022). Why is corporate virtue in the eye of the beholder? The case of ESG ratings. The Accounting Review, 97(1), 147-175.
  • Gibson Brandon, R., Krueger, P., & Schmidt, P. S. (2021). ESG rating disagreement and stock returns. Financial Analysts Journal, 77(4), 104-127.

The market-share figures on slide 4 come from Mordor Intelligence and Opimas, both 2024, as the slide states; the screening chart on slide 14 cites the Journal of Asset Management, 2024.

Materials

(c) Joerg Osterrieder, University of Twente

The project's published teaching material is free to use under CC BY 4.0. Attribute it to the GREEN FINANCE consortium and name the grant, 101237817.

Co-funded by the European Union - Erasmus+ Programme

Erasmus+ Programme | Capacity Building in Higher Education
Project 101237817 - GREEN FINANCE
Material on this site is published under CC BY 4.0, attributed to the GREEN FINANCE consortium.
Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Education and Culture Executive Agency (EACEA). Neither the European Union nor EACEA can be held responsible for them.