This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Environmental sustainability researchers at NUS found that widely used environmental, social and governance (ESG) ratings often fail to reflect companies' actual exposure to deforestation, highlighting the need to integrate satellite-based environmental data into sustainable investing frameworks. The study, published in the Proceedings of the National Academy of Sciences, was led by associate professor L.
Roman Carrasco from the Department of Biological Sciences and conducted in partnership with research fellow Yingtong Zhu and professor Johan Sulaeman from the NUS Sustainable and Green Finance Institute. The team investigated whether major ESG rating systems reflect companies' actual deforestation exposure. Many investors today seek to direct their money toward companies that are responsible stewards of the environment and society.
Companies are therefore given ESG ratings, which are meant to indicate whether a business is environmentally and socially responsible. These ratings increasingly influence investment decisions worldwide, but it remains unclear whether they accurately capture one of businesses' biggest environmental impacts: deforestation. The researchers combined satellite-derived forest loss maps, company asset locations, forest-risk commodity supply-chain information, media coverage, and commercial ESG and financial characteristics databases to examine the relationship between corporate deforestation and ESG scores.
In total, they examined 18 overall ESG scores and 12 deforestation-related subscores from five major international providers alongside two independent measures of company-level deforestation. The analyses included forest loss surrounding the assets of 13,841 companies worldwide between 2013 and 2024 and deforestation exposure of 210 companies through global supply chains for deforestation-risk commodities such as palm oil, soy, beef, pork, chicken and wood products between 2013 and 2020. The team also assessed whether deforestation-related media coverage, rather than actual deforestation, influenced ESG scores.
The study found no evidence that ESG ratings consistently capture companies' actual exposure to deforestation. Instead, ESG scores responded more strongly to media attention related to deforestation, whether positive coverage of companies' management actions or negative coverage of deforestation scandals. The researchers also found that companies involved in palm oil production were more likely to receive lower deforestation-related ESG scores than companies associated with soy, pork or chicken supply chains, suggesting potential commodity biases.
"This is the first study to evaluate multiple commercial ESG rating systems against independently measured corporate deforestation at the global scale. There is a need for ESG providers to integrate objective, spatially explicit deforestation information derived from satellite observations into future assessments, allowing investors to better contribute to reducing deforestation," Zhu said. "Our study does not imply that ESG ratings are not useful as a tool to move capital away from companies behind deforestation.
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