A Standardized Approach to Environmental, Social, and Governance Ratings for Business Strategy: Enhancing Corporate Sustainability Assessment

The current landscape of Environmental, Social, and Governance (ESG) ratings is fragmented by methodological inconsistencies, lack of standardization, and substantial divergences among rating providers. These discrepancies hinder comparability, reduce transparency, and undermine the reliability of ESG assessments, limiting their effectiveness for both investors and corporate decision-makers. To address these issues, this study introduces a standardized approach to ESG rating construction, aimed at enhancing the objectivity and interpretability of corporate sustainability evaluations. The methodology integrates the Global Reporting Initiative standards with the United Nations Sustainable Development Goals, thereby identifying a coherent set of key performance indicators across the ESG pillars. By relying solely on publicly available data and incorporating mechanisms for managing missing information, the model provides a transparent and reproducible framework for sustainability assessment. Its validity is demonstrated through an empirical application to firms in the financial and manufacturing sectors across Europe and the United States, with benchmarking against established ratings from providers. Rather than replicating existing ESG scores, the model offers a transparent and reproducible alternative built on disclosed performance data, without relying on forward-looking statements, corporate promises, or commercial data providers. By penalizing non-disclosure and enabling sector-specific sensitivity analysis, the framework supports more accountable and customizable sustainability assessments, helping align ESG evaluations with strategic and regulatory priorities.