會計審計論叢 Review of Accounting and Auditing Studies

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RAAS 2025/06
Vol.15 No.1: 1-40

Measuring Corporate Sustainability: The Role of Relative Rankings in ESG Performance Prediction

Chi-Chun Liu¹, Xiang-Yu Huang¹, and Nian-Zu Yeh^1*
¹Department of Accounting, National Taiwan University

Abstract: The purpose of this study is to investigate the ability of relative sustainability rankings of firms to predict future sustainability performance and to address the limitations of the current sustainability scoring methodology in terms of accuracy and stability. Relative sustainability rankings are assessed through a combination of relative rankings and absolute scores of firms within an industry or group, which can effectively mitigate the confusion caused by disagreements between different rating agencies and fill the gap left by using only a single measure for cross-industry comparisons. Using data from Refinitiv 2004-2023, this study empirically demonstrates that a firm's relative sustainability ranking in the previous year is a stable predictor of its future sustainability performance, and this result remains significant after controlling for prior performance. Further incorporation of sustainability controversies reveals that while relative rankings have predictive power, relative sustainability rankings will predict future performance in the opposite direction in the presence of sustainability controversies. This study also examines how financial characteristics interact with relative rankings, providing insights for capital market participants.

Keywords: Relative ranking; ESG scores; Sustainability

* Corresponding author ; e-mail: d09722001@ntu.edu.tw

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