Combining E, S, and G Scores: An Exploration of Alternative Weighting Schemes
Environmental (E), social (S), and governance (G) scores have shown different relationships with financial characteristics of firms. Historically, governance has provided the strongest significance, social the weakest. A combination of E, S, and G scores that maximized historical financial significance did not lead to a signal with superior long-term stock-price effect. The weighting of E, S, and G issues in aggregating a composite score may better reflect the dynamically changing ESG landscape, aiming to capture unfolding, emerging risks.