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The Influence of Firm Size on the ESG Score: Corporate Sustainability Ratings Under Review


The concept of sustainable and responsible (SR) investments expresses that every investment should be based on the SR investor’s code of ethics. To a large extent the allocation of SR investments to more sustainable companies and ethical practices is based on the environmental, social, and corporate governance (ESG) scores provided by rating agencies. However, a thorough investigation of ESG scores is a neglected topic in the literature. This paper uses Thomson Reuters ASSET4 ESG ratings to analyze the influence of firm size, a company’s available resources for providing ESG data, and the availability of a company’s ESG data on the company’s sustainability performance. We find a significant positive correlation between the stated variables, which can be explained by organizational legitimacy. The results raise the question of whether the way the ESG score measures corporate sustainability gives an advantage to larger firms with more resources while not providing SR investors with the information needed to make decisions based on their beliefs. Due to our results, SR investors and scholars should reopen the discussion about: what sustainability rating agencies measure with ESG scores, what exactly needs to be measured, and if the sustainable finance community can reach their self-imposed objectives with this measurement.

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Fig. 1


  1. For the development and the growing attention, it is irrelevant that some of the political initiatives are not really ‘sustainable finance’, because the focus is often only on the environment and so it should actually be considered green finance.

  2. Obviously, there are many more possible variables that could be used in this respect, but it is beyond the scope of this paper to look at them.

  3. Some authors combine the institutional and legitimacy theories and comment that they “tend to overlap and cannot be considered mutually exclusive” (Baldini et al. 2016, p. 2). Suchman (1995, p. 571) views “organizational legitimacy” as the core concept of the “intellectual transformation” of the institutional theory. But it is also used in other theories (Reast et al. 2013; Meyer and Rowan 1977). This paper sees (organizational) legitimacy and legitimacy ‘theory’ as a part of the neo-institutional theory like Schaltegger and Hörisch (2017).

  4. Sustainable development is mostly defined as a “development which meets the needs of current generations without compromising the ability of future generations to meet their own needs” (Brundtland and Khalid 1987).

  5. 30% of all instruments apply to large listed companies, 40% to all company sizes and around 20% to specific industry sectors (Bartels et al. 2016).

  6. Sustainability ratings paid for by companies are rather unusual but getting more attention with the growing green bond market (Eurosif 2018) and second party opinions, paid by the issuer of the bond (Schneeweiß 2016).

  7. In the number of rated companies, ASSET4 is comparable with the MSCI ESG Rating (Klug and Sailer 2017).

  8. The table with the distributions over the years is available on request.

  9. ASSET4 screened the database for strategic KPI. After this process, they decided to inactivate some indicators. In total, they identified strategic KPI that they nowadays employ for their ratings (active KPIs). The rest were deactivated after 2014, yet they are still available in its database. We only concentrated on the active KPIs. The database includes 184 indicators scored over all four pillars. Removing the indicators of the economic pillar leaves 157 active indicators. Now there is a new calculation resulting from the old data points.

  10. This is comparable to the disclosure index of Bloomberg used by Fatemi et al. (2017).

  11. Scope 1: “A reporting organization’s direct GHG emissions”; scope 2: “A reporting organization’s emissions associated with the generation of electricity, heating/cooling, or steam purchased for own consumption”; scope 3: “A reporting organization’s indirect emissions other than those covered in scope 2” (World Business Council for Sustainable Development (WBCSD) and World Resources Institute (WRI) 2004, p. 103).

  12. With respect to the discussion about the Partial Least Square Path Model (PLS-PM) and the co-variance based Structural Equation Model (SEM) (Sarstedt et al. 2016; Reinartz et al. 2009; Rönkkö et al. 2015; Edwards 2011), we decided also in accordance to Hair et al. (2011) for the co-variance based SEM.

  13. For further information on differences between formative and reflective specifications of the latent variables see Jarvis et al. (2003).

  14. A discussion of the overall score is missing. But it exists approaches for subscores. For example, Schultze and Trommer (2012) discuss the measurement of environmental performance.


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This paper has benefited from valuable feedback, suggestions, and enlightening conversation with many individuals as well as participants at the 16th FRAP/SSFII Conference 2017 in Cambridge, UK and at the UNPRI Academic Network Conference in Berlin, Germany. Furthermore, we want to thank the editor and the reviewers for helpful recommendations. This project was financially supported by the German Federal Ministry of Education and Research (BMBF) (Grant No. 01UT1404A).

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Correspondence to Samuel Drempetic.

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Drempetic, S., Klein, C. & Zwergel, B. The Influence of Firm Size on the ESG Score: Corporate Sustainability Ratings Under Review. J Bus Ethics 167, 333–360 (2020).

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  • Data availability
  • ESG rating
  • Firm size bias
  • Measurement of corporate sustainability
  • Organizational legitimacy
  • Sustainable and responsible investment (SRI)

JEL Classification

  • C33
  • M14
  • L25