Publications
Publications
- January 2022
- Accounting Review
Why Is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings
By: Dane Christensen, George Serafeim and Anywhere Sikochi
Abstract
Despite the rising use of environmental, social, and governance (ESG) ratings, there is substantial disagreement across rating agencies regarding what rating to give to individual firms. As what drives this disagreement is unclear, we examine whether a firm’s ESG disclosure helps explain some of this disagreement. We predict and find that greater ESG disclosure actually leads to greater ESG rating disagreement. These findings hold using firm fixed effects, and using a difference-in-differences design with mandatory ESG disclosure shocks. We also find that raters disagree more about ESG outcome metrics than input metrics (policies), and that disclosure appears to amplify disagreement more for outcomes. Lastly, we examine consequences of ESG disagreement and find that greater ESG disagreement is associated with higher return volatility, larger absolute price movements, and a lower likelihood of issuing external financing. Overall, our findings highlight that ESG disclosure generally exacerbates ESG rating disagreement rather than resolving it.
Keywords
ESG Ratings; Rating Agency Disagreement; ESG Disclosure; Corporate Social Responsibility; Sustainability; Corporate Social Responsibility and Impact; Environmental Sustainability; Corporate Disclosure
Citation
Christensen, Dane, George Serafeim, and Anywhere Sikochi. "Why Is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings." Accounting Review 97, no. 1 (January 2022): 147–175.
Supplemental Information
Online Appendix