ESG Rating Divergence and their Predictive Power for Carbon Emissions: Evidence from the STOXX Europe 600 Companies

Abstract

This thesis investigates the divergence of environmental, social, and governance (ESG) ratings and the relationship between ESG ratings and corporate carbon emissions. Using two firm-level datasets covering 478 non-financial companies listed in the STOXX Europe 600 as of February 2025, we apply pairwise Spearman rank correlation analysis and two way fixed-effects (TWFE) regression models. The empirical findings suggest significant divergence across ESG ratings. However, we do not observe a statistically significant neg ative relationship between ESG ratings and firms’ future carbon emissions or intensity, which contradicts our hypothesis. This study contributes to the literature by offering a large-scale analysis of the European market. Furthermore, by directly comparing the predictive power of two ESG ratings with respect to corporate carbon emissions, we po tentially provide important insights for sustainability-oriented investors regarding which ESG rating is a reliable indicator of genuine environmental performance.