What is it about?
ESG ratings are widely used by investors to assess how sustainably companies operate, but do these ratings reflect companies’ actual environmental impacts? We examined whether ratings from five major ESG providers capture companies’ exposure to deforestation. We compared ESG ratings with independently measured deforestation using satellite-based forest-loss data around corporate assets and supply-chain data covering major deforestation-linked commodities. We found little evidence that ESG ratings consistently corporate deforestation exposure. Instead, ratings were more consistently associated with media coverage and reported environmental incidents.
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Why is it important?
Trillions of dollars are invested using ESG information, creating an opportunity for financial markets to help address environmental problems such as deforestation. But this can only work if ESG assessments accurately identify companies exposed to environmental harm. Our results reveal an important measurement gap: actual deforestation is often poorly reflected in ESG ratings, while companies can be treated differently depending on the commodities they produce. We show how satellite observations, company asset locations and supply-chain information could provide more direct evidence of environmental impacts. Integrating these data into ESG assessments could help investors better identify deforestation exposure and direct finance toward more sustainable activities.
Perspectives
We compared multiple commercial ESG rating systems with independently measured corporate deforestation at a global scale and uncovered a substantial gap between ESG ratings and actual deforestation exposure. For us, the encouraging message is not that ESG ratings are ineffective, but that they have considerable potential to improve. Given their broad coverage of companies and influence on investment decisions, integrating objective, spatially explicit information from satellite observations and supply chains could make ESG assessments much more powerful. We hope this work helps move corporate sustainability assessment closer to what is actually happening on the ground, and ultimately helps investors contribute more effectively to reducing deforestation.
Yingtong Zhu
National University of Singapore
Read the Original
This page is a summary of: Corporate ESG assessments fail to capture actual deforestation exposure, Proceedings of the National Academy of Sciences, September 2026, Proceedings of the National Academy of Sciences,
DOI: 10.1073/pnas.2526924123.
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