How to combine ESG scores

The use of ESG metrics is increasingly affecting investment and lending decisions. Along with the growing relevance of sustainability issues and policymakers plans, ESG behaviour is to being included in the determination of companies credit ratings.Given the high number of ESG scores and metrics, it could be challenging for investors to understand and select the best ESG measure. In this paper we address this issue by proposing a method to combine the information provided by different ESG scores into a single aggregate measure of company sustainability.The combined ESG metric is built using a Bayesian approach which then assigns weights to the single scores based on their capability to predict the credit rating of companies.The proposed methodology can help investors to improve their investment decisions by combining more and diverse information on company sustainability as a driver of companies credit rating, thereby reducing information asymmetries