Systematic common components in ESG ratings across legal origins

This study investigates the systematic components of ESG ratings by applying a multilevel factor model using the GCC approach. Leveraging ESG data from MSCI and Refinitiv across countries grouped by legal origin (English, French, German, and Scandinavian), we identify a single global factor consistently present across aggregate ESG scores and individual E/S/G pillars, reflecting the globalisation of ESG standards. However, the number and influence of local factors vary across legal origins and data providers. Notably, Refinitiv ratings are dominated by global factors, while MSCI ratings exhibit stronger local factor influence. These findings reveal rater-specific divergences and mixed evidence on the role of legal origin in shaping ESG performance. We argue that enhancing the relative importance of global factors — through harmonised ESG disclosure standards — can improve the consistency and predictive power of ESG ratings. Policy implications include the need for global mandatory reporting frameworks.