Peer effects of corporate ESG practice: Incorporating the impact of ESG rating disagreement

The conception of environmental, social, and governance (ESG) performance has been widely implemented and has become an important indicator of firms’ eco-friendly transformation in heavy-pollution industries. The sectoral and regional peer influences of corporate ESG performance can effectively promote firms’ green sustainable development within an entire industry, district, and market. In this study, our main hypothesis is that corporate ESG performance has a significantly positive peer effect among heavy-pollution industry firms within the same province, industry, and product market. Therefore, by employing novel spatial econometric techniques, we investigate the peer effect of corporate ESG performance among 681 of China’s A-share listed firms within 20 heavy-pollution industries from 2012 to 2021 and explore the impacts from peer indirect effect views, such as public media attention, regulatory pressure, and green innovation. Further, we detect the sectoral and regional peer pulling and dragging effects under the two statuses of firms’ ESG rating changes. The main findings are as follows. First, corporate ESG performance has a significantly positive peer effect, which is the highest among firms within the same industry. Second, the mechanism analysis presents that the increase in other firms’ negative web news, environment-related penalties, and green patents has different peer indirect effects on corporate ESG performance within the same province, industry, and product market. Third, corporate ESG performance has a significantly positive peer-pulling effect among firms when other firms’ ESG levels increase, yet a significantly positive peer-dragging effect only within the same region and industry when other firms’ ESG levels decrease. This study gives empirical contributions that firms can take advantage of the positive peer effect of corporate ESG performance to improve their own ESG practice level and employ it as a competitive strategy for pursuing long-term value, and governments should maintain sustainable supervision measures and an orderly competitive market environment to cultivate a consensus on corporate ESG development in heavy-pollution industries.

Environmental, social, and governance (ESG) factors have become a core consideration in global investment decisions. However, traditional ESG ratings suffer from limitations such as fragmented data sources, low processing efficiency, high subjectivity, and poor timeliness, hindering their in-depth application in investment practice. This study focuses on building an ESG rating model based on artificial intelligence (AI) technology, exploring its application value across the entire chain from data integration and rating generation to investment optimization. The study systematically examines the diversity and complexity of ESG data sources and proposes a framework for intelligent data collection and cleaning from multiple sources, integrating structured financial data with unstructured text and image data. At the model construction level, the application of natural language processing (NLP) technology in extracting key ESG issues and sentiment analysis is explored. This study employed machine learning (ML) and deep learning (DL) methods for feature construction and credit rating prediction, significantly improving the objectivity, dynamic responsiveness, and risk identification performance of ratings. The paper further explored the potential of AI-enabled ESG rating mechanisms in asset allocation optimization, risk control, and portfolio performance improvement. Strategy backtesting combined with historical data verified the model's practical effectiveness. Furthermore, the study explored key challenges and development paths, including model interpretability, algorithmic fairness, and data reliability. Experimental results demonstrate that the AI-based ESG assessment framework is valuable in improving information integration efficiency, enhancing rating accuracy, exploring deep risk correlations, and promoting proactive investment decisions, providing financial institutions with advanced digital analysis tools.

The trend of creating ratings of the regions and companies based on the environmental, social and governance factors is on the current agenda. It is proven in practice and in numerous studies that there is a positive impact of ESG rating positions on the economic efficiency of companies: on the value of the company due to improving reputation and increasing labor productivity, on corporate profitability, credit ratings, rise in share prices, reducing the volatility of stock returns. As a result, there is a growing number of corporations interested in improving their assessment in a number of national and international ratings (this research studies ESG Book, Morningstar Sustainalytics). At the same time, the consulting and rating agencies create ESG ratings of regions (World Economics Journal, Global Sustainable Competitiveness Index, Heritage Foundation), assessing countries according to the parameters of the sustainable development. The question is whether there is a mutual influence of the corporate and the regional ESG ratings. The purpose of this article is to identify whether there is a relationship between the factors of corporate ESG ratings and the ESG indicators of countries where these corporations are registered. The subjects of this study are corporate and regional ESG ratings. The methodological basis of this work is a regression analysis. The results showed a statistically significant relationship between the corporate ESG ratings and the regional indicators of sustainable development: both for individual ESG parameters and in a form of an integral assessment (ESG). Nevertheless, the regional ESG ratings have a limited impact on the number of corporate assessments of sustainable development, and this relationship is not as strong as the first one. It is possible that this relationship will become stronger over time, that can be a subject of further research. Countries all over the world are able to provide new tools in public policy to support companies in achieving goals of the ESG strategies, and, consequently, to improve their own regional indicators in a number of ratings, that can attract additional investments to the region and improve the quality of life of the society in the context of the ESG parameters.

ESG ratings are closely linked to corporate resource allocation and overarching macroeconomic constituents. Nevertheless, there is a noticeable lack in the literature investigating the interconnected relationship between the growth of local government debt, corporate underinvestment, and ESG ratings. This study aims to investigate the impact of local government debt on corporate underinvestment and its subsequent effects on corporate ESG performance. To achieve this goal, this study utilizes special bond data from Chinese provinces spanning the period between 2015 and 2021. The findings suggest that as local government debt swells, it imposes financing constraints on local companies, leading to underinvestment, particularly for listed companies with a high proportion of fixed assets and non-state-owned enterprises. A key effect is a “crowding-out effect” in which local government debt absorbs resources that could otherwise be allocated to private corporations and non-investment sectors. This trend illuminates the concealed costs of a debt-reliant growth model extending beyond the financial sector to impact broader corporate behavior and ESG performance. Our research suggests that government debt, corporate financing constraints, and ESG investment are intimately linked. The study concludes with policy implications and recommendations aimed at mitigating the investment gap in Chinese enterprises and promoting sustainable economic growth.

Currently, the core directive of China's economic trajectory is "high-quality development", shifting corporate mandates from singular economic performance to integrate with environmental, social, and governance (ESG) factors. This paradigm aligns with the internationally advocated ESG principles. And domestic corporate ESG rating systems are becoming increasingly sophisticated, positioning ESG ratings as a potentially crucial metric for corporate evaluation. This study, utilizing data from Chinese A-share listed companies spanning 2010 to 2022, employs a two-way fixed-effects model, with corporate growth serving as a mediating variable, to investigate the impact of media attention on corporate ESG performance. The empirical findings reveal a significant positive correlation between media attention and corporate ESG performance. Mechanism testing indicates that media attention significantly enhances corporate growth. Heterogeneity analysis demonstrates a more pronounced impact of media attention on non-state-owned enterprises and those located in western regions. This research provides empirical evidence supporting the influence of media attention on corporate ESG ratings, offering a basis for governmental measures to regulate media organizations and refine ESG rating systems. Furthermore, it offers guidance to corporations on enhancing the diversity of ESG practices and effectively leveraging media engagement.

[Purpose]This study analyzes the accounting treatment for the corporate spin-off through a case analysis, and examines the relationship between the corporate spin-off and ESG management. Specifically, we study the accounting treatment for the establishment of LG Energy Solutions by LG Chem in December 2020, and examine the impact of the spin-off decision on the ESG management of LG Chem and LG Energy Solutions.
 [Methodology]We examine the accounting treatment on the spin-off in accordance with the K-IFRS and analyze the detailed accounting process through the audit report of LG Chem and LG Energy Solutions. In addition, by comparing the ESG ratings of LG Chem and LG Energy Solutions with companies in the same industry, we review the relationship between spin-off and ESG management.
 [Findings]LG Chem operates the petrochemical business, battery business, advanced materials business, and life science business. Among them, the petrochemical business and battery business account for more than 80% of total revenue and net assets. LG Chem has received relatively lower grades than its competitors in the environment sector of ESG rating. This implies the possibility of suffering losses in the ESG rating due to the petrochemical business, despite the possibility of receiving better rating in the battery business. In order to improve the ESG rating, LG Chem needs to increase the year-on-year improvement rate of each indicator.
 [Implications]The case analysis of this study is expected to contribute to accounting education by examining the accounting treatment of the corporate spin-off and analyzing the case of LG Chem in detail. In addition, it is meaningful that it has expanded previous research by anlyzing the relation between the corporate spin-off and ESG management which is a non-financial factor.

Strengthening information disclosure through Environmental, Social, and Governance (ESG) practices has been confirmed by both academia and the business world to guide companies in fulfilling their social responsibilities and promoting the prosperity of the labor market. However, previous literature lacks studies on the output pathways and efficiency of corporate ESG ratings. Therefore, this paper takes A-share listed companies in the Shanghai and Shenzhen stock markets from 2009 to 2022 as the research sample. By employing the fuzzy-set qualitative comparative analysis (fsQCA) and Data Envelopment Analysis (DEA) methods, this study verifies the employment output pathways and efficiency of ESG. The analysis focuses on how ESG ratings affect the employment output efficiency of companies in different industries and of different types. The findings indicate that corporate size, wage levels, and ESG ratings can all independently serve as core conditions for employment levels. However, the employment output efficiency of ESG ratings is significantly lower than that of corporate size and wage levels. Moreover, state-owned enterprises exhibit a higher proportion of decreasing returns to scale, with varying returns to scale observed across industries.

In recent years, corporate ESG performance has been widely incorporated into investment decisions and capital allocation considerations, becoming a focal point and hot topic for research by governments and organizations worldwide. However, due to various reasons, significant discrepancies have emerged in ESG ratings for the same company across different institutions, and this growing divergence in ESG ratings has increasingly drawn the attention of scholars. Studying the differences in ESG (environmental, social, and corporate governance) ratings is of great significance. This not only helps to understand the root causes of differences, improve the objectivity, consistency, and comparability of ratings, but also helps users better understand the meaning and limitations of rating results. It is beneficial for investors to understand the focus of different ratings and develop more effective investment strategies. It can promote rated companies to improve the quality and transparency of ESG-related information disclosure. It can also provide a reference for regulatory agencies and policymakers, identify market failures and potential risks, and promote the development of more unified standards and frameworks. At the same time, this study can also promote the in-depth development of relevant academic research and theories. Based on this, this study systematically reviews the relevant literature on ESG rating divergence, focusing on its existence, causes, influencing factors, and impacts. The study finds that, in addition to the widespread existence of rating divergence in corporate ESG performance, scholars also disagree on the measurement and methods of this divergence. The reasons for rating divergence are mainly that ESG is a qualitative indicator; top-level design, intermediate calculations, and bottom-level data collection across multiple stages exacerbate divergence; and controversies in practice further deepen divergence, among others. The influencing factors and impact effects of ESG rating divergence are diverse. Given the existence of ESG rating divergence, all parties should treat ESG ratings with caution. This paper offers corresponding recommendations and looks forward to the future, providing a foundation for subsequent research.

Assessment of corporate governance determinants of ESG ratings is a task of high interest for researchers and practitioners in project management in information and communication industry (ICT). This is underpinned by the growing interest to responsible and sustainable investing. We analyzed key drivers of governance pillar of ESG ratings of ICT companies in the developed markets. The relevance of the topic was underpinned by significant share of the governance in overall ESG assessment of ICT projects. The paper filled research gaps because existing studies on the topic did not address the governance practices specifically in ICT companies. Conversely, the conclusions for some governance drivers were controversial or incomplete. Data were collected for 80 telecommunication and IT companies between years 2005–2019. The dependent variable was Refinitiv ESG rating. The set of explanatory variables consisted of corporate governance activities labeled as best practices in the literature. It was found that existence of corporate social responsibility (CSR) committee, CEO duality, presence of non-executive members in the board, policy independence and chairman’s past experience and continuity have positive and significant effect on ESG ratings of ICT companies. The presence of non-executive members in the board had marginal effect on ESG ratings. The growing representation of women in boards and management had positive but marginal effect on ESG score. The results can be used in practice for making recommendations for the development of managerial actions aimed at increase in ESG ratings. KeywordsInformation and communication industryProject controllingESG ratingCorporate governanceResponsible investments

In an era where sustainability practices face increasing global scrutiny, understanding how investment decisions impact ESG ratings is essential. This study examines the relationship between corporate overinvestment and ESG ratings using data from Chinese corporations between 2012 and 2020. Employing fixed effects models for empirical analysis, the results reveal a significant negative relationship between overinvestment and ESG ratings, particularly affecting the social aspect. These findings highlight the importance of efficient investment management in enhancing corporate ESG performance. The study provides valuable insights for corporations aiming to optimise resource allocation to improve their sustainability outcomes.

The absence of standardized criteria has resulted in significant discrepancies in corporate ESG ratings across different agencies, potentially causing investors to misinterpret corporate ESG performance. This study empirically examines the relationship between ESG rating divergence and stock price crash risk, drawing on data from A-share listed firms in Shanghai and Shenzhen between 2015 and 2022.The findings reveal that ESG rating divergence plays a critical role in mitigating the risk of stock price crashes. This effect is primarily driven by the reduction in corporate earnings management and the decrease in analysts' forecast biases. The study holds substantial relevance for both theoretical and practical spheres in terms of enhancing the understanding of ESG rating divergence. Furthermore, it broadens the research on determinants of stock price crash risk and provides empirical evidence for promoting a unified ESG rating system in China.

Does the ESG rating promote common prosperity within enterprises?

Does corporate ESG create value? New evidence from M&As in China

Using the “Policy Pressure-Innovation Alignment-Performance Transformation” theory, this paper looks at how ESG ratings, green innovation, and corporate dual-organizational performance are linked. This study uses a multi-period Difference-in-Differences (DID) model in conjunction with a conditional mediation effect model to examine how ESG ratings causally influence substantive green innovation, which in turn improves corporate financial and environmental performance. Regression results show that corporate ESG ratings have a big effect on the performance of both organizations. ESG ratings have a bigger effect on financial performance, while ESG scores have a bigger effect on environmental performance. Looking at the sub-dimensions shows that policy ratings have immediate effects on environmental performance and delayed effects on financial performance. The conclusion that the internalization response of corporate environmental costs is timely, while the market revaluation has a delayed transmission effect, holds true after being tested through parallel trend analysis and synthetic DID testing. More research shows that differences in ESG ratings hurt financial performance but help environmental performance. This means that differences in ESG ratings may lead to more real green innovation activities, which have a direct effect on the environment and, in the end, lead to bigger improvements in environmental performance. The moderating effect test shows that being aware of the environment makes substantive green innovation more focused on quality by making people feel responsible for their actions. Also, environmental management leads to more corporate green patents, which has resource displacement effects and makes green patent innovations less effective. Heterogeneity analysis shows that state-owned businesses use their institutional advantages to improve the “quality-quantity” of substantive green innovation, which helps their corporate green development performance. Declining businesses push for green innovation to fix problems that are already there, but mature businesses don’t like ESG rating policies because they are stuck in their ways, which stops them from making real progress in green innovation. This paper ends with micro-level evidence and theoretical support to solve the “greenwashing” problem of ESG and come up with “harmonious coexistence” policy combinations that work for businesses.

ESG rating results and corporate total factor productivity