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Background <p>Environmental, social, and governance ratings increasingly shape capital allocation in both emerging and developed markets, yet their divergence across providers raises fundamental questions about their reliability as measurement instruments. Existing literature documents substantial disagreement among global rating agencies and attributes it to differences in scope, measurement, and weight. However, evidence from emerging markets with mandatory sustainability disclosure regimes remains limited, and the interaction between domestic regulator-aligned raters and international providers has not been systematically examined. This study addresses that gap by analysing ESG rating divergence among Nifty 100 constituents in India and deriving comparative insights for European sustainable finance regulation, with particular attention to the recently introduced Indian ERP framework and European Regulation 2024/3005.</p> Main body <p>Using FY 2023–24 assessments from six rating agencies spanning domestic regulator-aligned, consensus-aggregation, performance-based, and risk-based methodologies, the study applies pairwise correlation analysis, cluster analysis, sector-level decomposition, and multivariate regression. Pairwise correlations range from −&#xa0;0.758 to 0.703 with a mean of 0.119, far below the near-unity convergence observed in credit ratings. Raters cluster into three methodological regimes: a consensus-aggregation cluster, a performance-rating cluster, and a scale-separated risk-based cluster. Regression analysis confirms that firms covered by the domestic regulator-aligned rater exhibit significantly higher divergence, and the interaction between domestic rating and foreign coverage is highly significant, supporting an institutional-embedding interpretation. Sectoral divergence is non-uniform, highest in industrials, metals, and retail, and lowest in information technology services and insurance, where domestic and international materiality frameworks overlap most. Five methodological sources of divergence (scope, measurement, weight, normalisation, and temporal) are identified, and a fourth structural channel, regulatory-environment divergence, is proposed. Comparative evaluation of India’s ERP framework and European Regulation 2024/3005 identifies complementary strengths and shared gaps in standardisation, comparability, materiality guidance, enforcement, and cross-border coordination.</p> Conclusions <p>ESG ratings do not yet function as interchangeable measurement instruments. For European investors with Indian blue-chip exposure, reliance on international providers alone yields incomplete assessments. The findings support bilateral regulatory cooperation between Indian and European authorities, standardised pillar-level disclosure, harmonised materiality guidance, and integrated reporting strategies for cross-jurisdiction issuers.</p>

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Measuring the unmeasurable? ESG rating divergence in Indian blue-chip companies: comparative insights for European sustainable finance

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年7月28日

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  • Pallavi Mishra

摘要

Background

Environmental, social, and governance ratings increasingly shape capital allocation in both emerging and developed markets, yet their divergence across providers raises fundamental questions about their reliability as measurement instruments. Existing literature documents substantial disagreement among global rating agencies and attributes it to differences in scope, measurement, and weight. However, evidence from emerging markets with mandatory sustainability disclosure regimes remains limited, and the interaction between domestic regulator-aligned raters and international providers has not been systematically examined. This study addresses that gap by analysing ESG rating divergence among Nifty 100 constituents in India and deriving comparative insights for European sustainable finance regulation, with particular attention to the recently introduced Indian ERP framework and European Regulation 2024/3005.

Main body

Using FY 2023–24 assessments from six rating agencies spanning domestic regulator-aligned, consensus-aggregation, performance-based, and risk-based methodologies, the study applies pairwise correlation analysis, cluster analysis, sector-level decomposition, and multivariate regression. Pairwise correlations range from − 0.758 to 0.703 with a mean of 0.119, far below the near-unity convergence observed in credit ratings. Raters cluster into three methodological regimes: a consensus-aggregation cluster, a performance-rating cluster, and a scale-separated risk-based cluster. Regression analysis confirms that firms covered by the domestic regulator-aligned rater exhibit significantly higher divergence, and the interaction between domestic rating and foreign coverage is highly significant, supporting an institutional-embedding interpretation. Sectoral divergence is non-uniform, highest in industrials, metals, and retail, and lowest in information technology services and insurance, where domestic and international materiality frameworks overlap most. Five methodological sources of divergence (scope, measurement, weight, normalisation, and temporal) are identified, and a fourth structural channel, regulatory-environment divergence, is proposed. Comparative evaluation of India’s ERP framework and European Regulation 2024/3005 identifies complementary strengths and shared gaps in standardisation, comparability, materiality guidance, enforcement, and cross-border coordination.

Conclusions

ESG ratings do not yet function as interchangeable measurement instruments. For European investors with Indian blue-chip exposure, reliance on international providers alone yields incomplete assessments. The findings support bilateral regulatory cooperation between Indian and European authorities, standardised pillar-level disclosure, harmonised materiality guidance, and integrated reporting strategies for cross-jurisdiction issuers.