Are environmental, social and governance (ESG) ratings reliable indicators of emissions outcomes? A case study of the airline industry

We analyse environmental ratings and emissions scores for commercial airlines from several major environmental, social and governance ratings providers. Specifically, we investigate whether emissions scores capture and predict absolute carbon emissions and emissions intensity levels, and whether scores are consistent across providers. This builds on existing literature by evaluating the predictive ability of ratings over significantly longer periods than past studies, examining within-industry ratings disagreement for carbon emissions scores, and using an industry-specific emissions intensity metric. Data covers 57 airlines from 2012 to 2021. Cross-sectional and panel regressions are estimated to investigate whether ratings capture and predict carbon emissions data. We find no evidence that emissions scores capture or predict reported carbon emissions, and find that scores from different providers diverge substantially. Persistent shortcomings may undermine trust in the ratings industry, create trade-offs between emissions abatement and ratings improvement, and hinder the incorporation of climate-related information in capital allocation decisions.