Assessing corporate sustainability: A decision-oriented ESG composite indicator

Abstract

Existing composite indicators for the assessment of corporate sustainability suffer from methodological limitations in the selection of elementary indicators and the aggregation scheme, which reduce their usefulness for decision-making. This paper proposes a novel composite indicator based on ten hard elementary indicators covering the environmental, social, and governance (ESG) pillars for a seven-year panel of 153 firms worldwide, aggregated using the Multi-Directional Benefit-of-the-Doubt (MDBoD) model. Through this approach, each firm receives not only an overall score, but also disaggregated scores at the pillar and indicator levels, which reflect the firm’s potential improvement relative to best-performing peers. The proposed composite indicator is therefore decision-oriented, as these scores allow managers and investors to determine which ESG dimensions should be prioritized. The results reveal substantial heterogeneity in ESG improvement priorities across peer groups, with the governance pillar emerging as the main priority in the manufacturing and construction, energy and resources, and finance groups, whereas the environmental pillar is the primary priority in the services and logistics group. Moreover, four performance profiles are identified based on ESG levels and trends: high-performing, emerging, declining, and low-performing.