The Dark Side of ESG Ratings: Future Challenges for Corporate Strategies

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dc.contributor.authorArslan, Aykut
dc.contributor.authorYener, Serdar
dc.contributor.authorAkturan, Abdulkadir
dc.date.accessioned2026-04-25T14:20:21Z
dc.date.available2026-04-25T14:20:21Z
dc.date.issued2025
dc.departmentSinop Üniversitesi
dc.description.abstractThis paper critically examines the methodological inconsistencies of Environmental, Social, and Governance (ESG) ratings and their impact on financial decision-making. While ESG scores are intended to guide investors and policymakers toward responsible business practices, discrepancies in rating methodologies raise concerns about their reliability and strategic value. Using a conceptual and theoretical framework, the paper integrates perceptions from institutional theory, signaling theory, and the sociology of valuation to explore how ESG ratings shape corporate sustainability narratives. It also draws on empirical studies to demonstrate inconsistencies in ESG scores and their consequences for financial markets. The study identifies three primary flaws in ESG ratings: (1) Divergent methodologies lead to inconsistent scores across rating agencies; (2) Firms prioritize ESG disclosure over actual sustainability improvements, fostering greenwashing; and (3) The lack of transparency in ESG rating methodologies distorts investment signals, leading to mispricing risks and misaligned sustainability incentives. Additionally, the absence of strong social indicators within ESG frameworks may contribute to the ineffectiveness of these ratings in truly capturing corporate sustainability. T he paper does not provide primary empirical analysis but synthesizes existing literature to propose a refined understanding of ESG ratings. It highlights the need for future research on regulatory standardization, AI-driven ESG assessments, and independent verification mechanisms. The findings suggest that investors should not rely solely on ESG ratings when making financial decisions. Instead, they should combine multiple sustainability metrics and qualitative assessments to avoid misleading investment choices. A lack of ESG rating standardization risks undermining public trust in sustainable finance and corporate responsibility efforts. Furthermore, the insufficient emphasis on social indicators within ESG ratings may hinder their ability to promote genuine corporate accountability and social progress. This paper contributes to the growing critique of ESG rating methodologies by arguing that without regulatory intervention, ESG scores will continue to serve as unreliable indicators of corporate sustainability.
dc.identifier.doi10.17323/fstig.2025.26712
dc.identifier.issn1995-459X
dc.identifier.issn2500-2597
dc.identifier.issue3
dc.identifier.scopus2-s2.0-105017863604
dc.identifier.scopusqualityN/A
dc.identifier.urihttps://doi.org/10.17323/fstig.2025.26712
dc.identifier.urihttps://hdl.handle.net/11486/8523
dc.identifier.volume19
dc.identifier.wosWOS:001578828000005
dc.identifier.wosqualityQ3
dc.indekslendigikaynakWeb of Science
dc.indekslendigikaynakScopus
dc.language.isoen
dc.publisherNatl Research Univ Higher Sch Economics
dc.relation.ispartofForesight and Sti Governance
dc.relation.publicationcategoryMakale - Uluslararası Hakemli Dergi - Kurum Öğretim Elemanı
dc.rightsinfo:eu-repo/semantics/openAccess
dc.snmzKA_WOS_20260420
dc.subjectESG Ratings
dc.subjectsustainable finance
dc.subjectcorporate governance
dc.subjectgreenwashing
dc.subjectinvestment risk
dc.subjectstandardization
dc.subjectfinancial markets
dc.subjectinstitutional theory
dc.subjectsignaling theory
dc.subjectsustainability metrics
dc.titleThe Dark Side of ESG Ratings: Future Challenges for Corporate Strategies
dc.typeArticle

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