Accounting for controversies in ESG scores: a Fuzzy TOPSIS approach

The aim of this paper is to provide a ranking of companies, based on ESG scores, which accounts for the greenwashing phenomenon. LSEG publishes an index of controversies that measures the extent to which a company is exposed to scandals or legal disputes or fines. In order to account for the uncertainty arising from possible greenwashing, we propose the use of Triangular fuzzy numbers to model the ESG score adjusted for controversies. Fuzzy TOPSIS is used for the final ranking of companies. Results are benchmarked to the LSEG ranking adjusted for controversies and a standard TOPSIS ranking. The results show that the ranking that accounts for greenwashing in a fuzzy setting offers a more balanced and resilient ranking against phenomena such as greenwashing. By comparing the rankings obtained with the one developed by LSEG, significant differences emerge, attributable to the methodology used and data biases. The study highlights how both methods are effective tools for classifying corporate ESG performance, with fuzzy TOPSIS standing out for its innovation in addressing the limitations of traditional data.