The concept of narrative portion is fundamentally multidimensional. The studies which investigate this issue are few and are divided into two categories. First, studies who used composite scores, provided by extra-financial rating agencies which just sum the scores of different facets of Annual Reports to provide an overall qualitative assessment and second studies who consider that the weights should be the same for all sectors. The aim of this paper is to draw attention to empirical problems arising when using such equally-weighted sums. This article proposes a novel weighting scheme of narrative portion with purpose to contribute to a better understanding of the complexity of composite indicators and to improve the quality of their outputs.
The findings of this research suggest that rating must be based predominately on ESG factor-specific weightings and criteria. As a result, the weightings of ESG factors strongly agreed with the proposed scale of jantzi (2008) which suggest specific minimum and maximum weights per ESG factors. Finally, Ma.Co.Index is a novel tool that yields a quantitative measure of disclosure which could be used in supplementary experimental and empirical research.
Keywords : ESG disclosures; narrative portion; management commentary; Composite KPIs; Ma.Co.Index