A ESG rating model for European SMEs using multi-criteria decision aiding

Through ESG assessment, companies can effectively measure their exposure to environmental, social, and governance (ESG) risks identifying opportunities for long-term sustainable growth and future social and environmental impact. This process is crucial for listed small and medium-sized enterprises (SMEs) wanting additional support in their ESG transition. The importance of such assessments will only intensify in the future as the implementation of the Sustainable Finance Disclosure Regulation (SFRD) and the Corporate Sustainability Reporting Directive (CSRD) will require all listed companies to be on equal footing. In this contribution, we propose to apply a multi-criteria method (MURAME) to assess the sustainability profiles of SMEs. The methodology, which allows for measuring a firm's environmental, social, and governance (ESG) efforts, is applied to a sample of European-listed SMEs with the aim of identifying ESG leaders and laggards and analyzing potential sector-specific effects. The obtained ranking results show some degree of robustness across different model parameterizations. Furthermore, we propose to model the benefits of voluntary disclosure of sustainability information under a prudential scoring framework.