ESG scores produced by ESG rating agencies. Our aim is not to reproduce ESG scores of listed, large companies to serve investors’ needs, but to shed some light on these aspects related to smaller unlisted companies in emerging countries. The indicator is unique, being the only one based on a wide sample of ES respondents.<sup>3</sup> By analyzing the actions of private sector SMEs in emerging countries to foster sustainability and green growth, we aim to better understand their contribution to the transition towards a more sustainable business environment. Given the increasingly ambitious social and environmental goals, measuring what matters for the planet and for people is something that cannot be ignored any longer, despite the obstacles of obtaining the relevant information for SMEs in emerging countries. The firm-level composite indicator helps to understand the performance of countries, sectors and size classes in each of the ESG pillars. Moreover, the determinants of the “Corporate ESG Responsibility” composite indicator can help to identify the drivers of the ESG performance in emerging countries as well as to understand how much ESG aspects are contributing to firms’ performance in the various dimensions.

In particular, we focus on MENA countries for a number of reasons. First, the region is significantly exposed to climate change - in terms of water scarcity, exposure to heat and in some cases to sea level rise - and to social developments (with relevant gender issues). Second, MENA countries need to green their growth model, as the region has seen CO2 emissions in absolute terms and even in per capita terms rising during the last years (between 2005 and 2018, absolute CO2 emissions increased by almost 50 percent). Finally, given the need to step up the climate ambition in MENA, there are relevant investment opportunities for adaptation and mitigation.

This contribution is structured as follows. Section 2 underlines the challenges of assessing ESG components and presents a high level literature review on ESG topics. In section 3, we discuss the methodology and in section 4, we show some results for emerging economies with a particular focus on the MENA region, where firms are showing the worst results across emerging markets.

# **2 The challenges of assessing ESG: A review of existing methodologies**

Under increasing regulatory and market pressure, firm-related ESG disclosure developed significantly over the last couple of years. However, while ESG topics require consistent and comparable metrics in order to compare firms’ performances, a consensus has not been reached on the relevant dimensions to assess the performance of firms.

Typically, ESG rating agencies<sup>4</sup> use firm-level quantitative and qualitative information to produce ESG ratings. They engage with firms directly – often using questionnaires to obtain financial and

> 3 Survey information is widely used for assessing ESG/Sustainability ratings. It is normally complementing financial information, hard data and public domain information.

> 4 The main ESG rating agencies are the following: Vigeo Eiris, which is part of Moody's (Moody's acquired a majority stake of Vigeo Eiris in April 2019); ISS-oekom (Institutional Shareholder Services group of companies - “ISS”) which has been integrated

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