MIT Sloan Sustainability Initiative

The Aggregate Confusion Project

Capital markets are moving fast to incorporate Environmental, Social, and Governance factors.

Why sustainable business needs better ESG ratings

ESG ratings: Don’t throw the baby out with the bath water

The problem? ESG data are noisy and unreliable.

We found the correlation among prominent agencies’ ESG ratings was on average 0.54; by comparison, credit ratings from Moody’s and Standard & Poor’s are correlated at 0.92. This ambiguity around ESG ratings creates acute challenges for investors trying to achieve both financial and social return.

With our five member companies, the Sustainability Initiative is working to solve this problem through a program of research to improve the quality of ESG measurement and decision making in the financial sector.

We've begun to examine these problems, and potential solutions, in our ongoing suite of research:

Research + Publications

Aggregate Confusion Project Scope

Together, we are ready to chart a new course towards more rigorous and coherent methods for ESG integration. Each member organization will have slightly different business objectives, internal capabilities for ESG research, and priorities among ESG issue areas; but broadly we understand there to be a few tasks common to all:

Reduce the level of noise in measuring specific ESG categories such as labor treatment, carbon emissions, and product safety;
Understand the effect of ESG-driven investment flows on stock price and firm behavior;
Develop smarter ways to aggregate ESG factors into composite indices;
Reliably assess investor preferences to enable ESG indices to be more customized and attuned to investors’ values.

Building a sustainable investment capability inside your firm is a process of engaging people and building their skills and knowledge. Our intention is that our members will have access to top researchers, and the opportunity to engage with our entire team and suite of activities to build their firm’s capacity.

MIT Sloan Sustainability Initiative

Carbon Confusion

A suite of research within the ACP, we are probing fundamental questions around scalability, additionality, asset pricing, and the evolving regulatory environment of carbon markets.

Learn More