Exploring the Ultrametric Composite Indicator for Assessing Corporate Sustainability

This paper explores the use of the Ultrametric Composite Indicator (UCI) model to construct a hierarchy of composite indicators for assessing corporate sustainability based on the Environmental, Social, and Governance (ESG) dimensions. Given the multidimensional nature of sustainability, this study develops a structured hierarchy that shifts from domain-specific indicators to a general composite index, focusing on significant higher-level Composite Indicators (CIs). Using data from 69 publicly listed industrial companies headquartered in one of the 27 countries of the European Union (EU27), with 9 variables belonging to the three subdomains of the ESG, the UCI model returns a hierarchy of 6 composite indicators, which are then compiled by means of the Principal Component Analysis. The preliminary results indicate the presence of two significant higher-level CIs compared to the ones a priori identified. This suggests that in a more extensive study multiple intermediate CIs may be statistically significant. Moreover, this approach can improve the interpretability of the set of CIs, while still respecting the parsimony criterion.