Can environmental, social, and governance rating divergence harm the green total factor productivity? Evidence from Chinese listed firms.

The study examines the impact of environmental and social ESG factors on the cost of capital of companies in the context of sustainable development. Its purpose is to assess how the integration of ESG indicators influences financial efficiency, particularly the weighted average cost of capital (WACC), and to identify industry- and region-specific differences in this impact. The methodology is based on a quantitative analysis of panel data from publicly listed companies for the period 2015–2023, using ESG ratings from MSCI and Sustainalytics. The results demonstrate that stronger ESG performance is generally associated with a lower cost of both equity and debt capital, contributing to improved long-term financial sustainability. The most pronounced effects are observed in capital-intensive sectors such as industry, energy, and mining, where environmental standards reduce credit risks. Regionally, the strongest ESG impact is found in the European Union and North America due to advanced regulatory frameworks. The study proposes methodological approaches and practical tools for integrating ESG factors into financial analysis and corporate strategic planning.

Executive team stability and ESG rating divergence

Customer concentration and suppliers' impression management in climate disclosures.

ABSTRACT When formulating earnings projections, securities analysts take into account ESG information pertaining to a target firm’s supply‑chain counterparts. This research investigates the informational spillover generated by ESG performance across the supply chain, viewed through the lens of analysts’ earnings forecasts. Our findings indicate that robust ESG performance within the supply chain significantly diminishes analysts’ forecast errors, thereby corroborating a spillover phenomenon. This effect becomes more conspicuous when the focal firm boasts a high proprietary ESG rating, functions as a state‑owned entity, or maintains a separation between the positions of chairman and general manager. Additionally, the spillover impact proves stronger for downstream enterprises relative to upstream ones. A mediation analysis reveals that supply‑chain ESG performance influences forecasts by augmenting corporate information transparency and mitigating operational risks. Collectively, these empirical outcomes extend the literature on ESG consequences and analyst behavior to a supply‑chain setting, offering actionable insights for corporate ESG disclosure and supply‑chain risk‑management decisions.

ABSTRACT Amid the imperative for global climate governance and sustainable development, green technological innovation is a vital path for firms to overcome resource constraints and improve development quality. By bridging firms and capital markets, environmental, social, and governance (ESG) ratings improve the external information environment and establish a market-based governance framework aligned with green innovation incentives. Leveraging SynTao Green Finance’s inaugural publication of ESG ratings as a quasi-natural experiment, this article examines the effect of these ratings on green technological innovation, using a time-varying difference-in-differences approach on Chinese A-share listed firms from 2009 to 2021. We find that favourable ESG performance significantly promotes green technological innovation, a result confirmed by extensive robustness checks. Three transmission channels are identified: alleviating financing constraints, raising innovation efficiency, and amplifying market attention. The promotional effect is particularly salient in growth-stage, eastern-region, high-tech, and highly competitive firms. Further analysis shows that ESG ratings strengthen the intertemporal continuity of corporate green innovation and that CEOs’ green professional background positively moderates this relationship. Regulators should accelerate the standardization of China’s ESG disclosure framework and broaden its coverage. Firms should strengthen internal controls and non-financial reporting so that improved ESG performance translates into substantive green innovation.

ABSTRACT Amid the wave of the digital revolution, the openness of public data served as a crucial measure to advance the construction of Digital China and promote enterprise digital transformation. Based on data from A-share listed enterprises between 2007 and 2023, this study employed the quasi-natural experiment of local governments launching public data platforms. Using a staggered difference-in-differences (DID) model and drawing on innovation ecosystem theory, the study explored the relationship between public data openness and enterprise digital transformation. The findings indicated that public data openness facilitated enterprise digital transformation, and this effect remained robust after various tests. The innovation ecosystem functioned as an important intermediary in this relationship. Specifically, public data openness promoted digital transformation by encouraging enterprises to increase innovation resource investment, optimise the innovation environment, and strengthen innovation collaboration. Further analysis revealed that absorptive and adaptive capacities reinforced the positive impact of public data openness on digital transformation, with the effect of absorptive capacity being more pronounced. Additionally, the promotion effect was stronger among non-state-owned enterprises and firms with lower operational efficiency. Public data openness was also found to promote digital transformation from multiple dimensions, with a greater effect on the transformation of underlying technological applications than on the application of digital technologies. Among these, cloud computing transformation benefited the most. Finally, the digital transformation driven by public data openness simultaneously enhanced enterprises’ economic performance and optimised their ESG ratings. The research findings contributed to a deeper understanding of the value creation role of public data openness in facilitating enterprise digital transformation.

• Sustained ESG rating improvements matter more than static, one-off improvements. • ESG Improvers portfolios consistently exhibit strong risk-return profile. • Governance improvements drive resilience during market stress. This study explores the link between environmental, social, and governance (ESG) rating improvements and stock performance. Building a portfolio of stocks that showed sustained ratings improvement from 2019-2023, we find that this “ESG Improvers” portfolio delivers superior returns compared with randomly constructed portfolios, portfolios composed of companies with unchanged ESG ratings, and the ASX200 and S&P500 indices. Firms with stable or declining ESG ratings tend to underperform, while ESG Improvers consistently exhibit a stronger overall risk–return profile. These findings confirm the view that only sustained ESG improvements are related to stock performance and highlight the need for investors to actively scrutinize one-off ESG rating improvements.

How does ESG rating uncertainty affect stock price crash risk? Evidence from China

Environmental, Social, and Governance (ESG) investing has emerged as a critical trend in global financial markets. However, the persistent disparity in ESG ratings undermines their reliability and utility, posing challenges for stakeholders in assessing corporate sustainability. To validate how ESG rating divergence meaningfully impact on aggregate outcomes. To answer this question, present study investigates the impact of ESG rating divergence on corporate carbon performance, emphasizing the mediating role of corporate green innovation. Using Chinese A-share listed firms, the findings reveal that ESG rating divergence significantly reduces corporate carbon performance. The study identifies a novel mechanism where ESG rating divergence hampers green innovation, which subsequently weakens corporate carbon performance. Robustness checks using instrumental variables, and alternative measures confirm the reliability of the findings. Notably, the adverse impact of ESG rating divergence intensified after the COVID-19 pandemic, reflecting the evolving dynamics of corporate sustainability challenges. This study is among the first to explore the intricate relationship between ESG rating divergence, green innovation, and carbon performance in the context of a major emerging economy. The findings underscore the urgent need for standardized ESG disclosure practices and harmonized rating methodologies to minimize divergence and enhance transparency. Policymakers, regulators, and investors are urged to address these issues to foster innovation, meet stakeholder expectations, and support the global transition to a low-carbon economy, ensuring sustainable corporate growth.

ABSTRACT Greenwashing is becoming an increasingly important topic with the growing popularity of ESG and sustainable mutual funds. The greenwashing of a few funds can damage trust in the entire sustainable investment industry. This article aims to measure the prevalence of greenwashing among US-domiciled ESG funds by analyzing the difference in the ESG implementation between 261 ESG and 261 propensity score matched conventional funds from 2012 to 2022 in two ways. First, panel regression analysis shows that ESG funds have between 1.1 and 6.7 percentage points higher ESG scores on a normalized scale after controls. For funds with environmental and social focuses, the difference in the respective ESG pillar score is as high as 13.8 percentage points. The differences are statistically and economically significant depending on the ESG rating provider. Second, the holdings of ESG funds have lower ex-ante ESG rating momentum. Thus, the ESG ratings of ESG funds and conventional funds converge. The convergence is driven by stronger rating momentum for conventional funds. The finding holds for active and passive funds. Overall, the article finds that ESG funds are not greenwashing as they buy and hold firms with higher ESG ratings. However, ESG funds appear no better at improving the ESG characteristics of their holdings than conventional funds. These findings have implications for investors, fund managers, and regulators.

ABSTRACT As the ESG concept deepens within China’s capital market, dynamic rating changes have emerged as critical information shocks influencing asset pricing. Using a sample of China’s A-share listed companies, this study empirically examines the asymmetric impact of ESG rating changes on Cumulative Abnormal Returns (CAR) and their transmission mechanisms from the perspectives of signaling theory and information processing. The findings indicate: (1) ESG rating changes contain significant marginal information value. Rating upgrades act as positive “certification signals” that effectively revise investor expectations regarding firm prospects, driving positive valuation repricing. Conversely, rating downgrades are interpreted as severe “Red Flags,” triggering a much stronger negative market penalty, thereby exhibiting significant asymmetry. (2) Mechanism analysis reveals that ESG rating changes drive asset repricing through the combined channels of investor sentiment, market liquidity, and corporate reputation. (3) Heterogeneity analysis highlights that market reactions to ESG rating changes are significantly more sensitive among private enterprises, nonpolluting industries operating in low-regulation environments, and firms subject to mandatory ESG disclosure. This study extends ESG pricing theory in emerging markets from an information repricing perspective, providing robust empirical evidence for refining ESG disclosure frameworks and optimizing investment decisions.

Purpose This study examines whether investor-management interactions during corporate site visits in China help reduce ESG rating divergence. Building on prior research that identifies information asymmetry as a key driver of ESG rating divergence, we investigate whether voluntary disclosure in an interactive setting improves the subsequent consistency of ESG assessments. In particular, we focus on whether ESG-related attention during corporate site visits influences ESG rating divergence and through what mechanisms. Design/methodology/approach Using a sample of A-share firms listed on the Shenzhen Stock Exchange, we match corporate site visits from 2012 to 2021 with ESG rating divergence in the following year from 2013 to 2022. ESG attention is measured through textual analysis of Q&A transcripts using a Latent Dirichlet Allocation (LDA) topic model. ESG rating divergence is measured as the standard deviation of standardized ESG ratings issued by six major rating agencies. To test our hypotheses, we estimate OLS regressions with firm and year fixed effects. Findings We find that greater ESG attention during corporate site visits significantly reduces subsequent ESG rating divergence. This effect operates through two channels: improved information disclosure quality and increased media coverage. In addition, the mitigating effect is more pronounced when management responses are more positive, when firms use more euphemistic language, and when firms operate in environmentally sensitive industries. Originality/value Our findings identify private investor–management interactions during corporate site visits as an important factor shaping ESG rating divergence. This study contributes to the literature on ESG ratings and voluntary disclosure by showing that corporate site visits can reduce information asymmetry and improve the consistency of ESG evaluations. The findings also offer practical implications for managers, investors, and regulators.

Can institutional investors mitigate ESG rating disagreement? Evidence from China

Organizations need quality systems that convert external sustainability pressures into agile, innovative operations. Moving beyond prior work that views the Chief Sustainability Officer (CSO) largely as a symbolic signal, we reconceptualize the CSO as an enterprise Sustainability-Quality Management System (S-QMS) architect who integrates external knowledge into standardized processes, data governance, and continuous improvement routines. Analyzing 15,282 firm-years (2009–2019) and Sustainalytics ESG ratings, we find that firms with CSOs exhibit significantly higher total ESG scores and higher Environmental, Social, and Governance (ESG) pillars, with average total scores approximately 0.323 point (7.8%) higher than firms without CSOs; results hold in OLS, propensity-score matched, and entropy-balanced samples. We also document appointment-year improvements, especially on environmental metrics, consistent with near-term quality system effects. Theoretically, we integrate Resource Based View (RBV) and signaling theory with dynamic capabilities and Quality Management routines (PDCA/Kaizen) to explain how CSOs transform external knowledge into process control, disclosure quality, and performance gains. For practitioners, our findings suggest that to maximize business excellence, CSOs should be empowered not just as strategists, but as operational leaders with authority over quality governance and process optimization.

ABSTRACT ESG rating disagreement has become increasingly prevalent, yet its cross-firm spillover effects along supply chains remain underexplored. Using matched data of Chinese A-share listed companies and their suppliers from 2009 to 2024, this study employs panel fixed-effects models combined with instrumental variable approaches, propensity score matching, and other robustness checks to empirically examine the impact of supplier ESG rating disagreement on customer firm resilience. The results indicate that supplier ESG rating disagreement significantly undermines customer firm resilience. Mechanism analysis reveals that this negative effect operates through three channels: heightening reputational pressure, exacerbating financing constraints, and intensifying supply chain relationship volatility. Heterogeneity analysis demonstrates that this adverse effect is more pronounced among non-state-owned enterprises, firms with higher supplier concentration, those operating in environments with greater retail investor attention to environmental issues, and firms in more competitive industries. This study uncovers the cross-firm spillover effects of ESG rating disagreement along supply chains, offering policy implications for ESG rating standardization and supply chain risk management.

Environmental, Social, and Governance (ESG) has emerged as an important framework for evaluating corporate responsibility in modern business environments. This review examines the evolution, benefits, limitations, and ethical foundations of ESG while assessing its effectiveness as a tool for measuring responsible corporate conduct. The study adopts a narrative review approach, synthesizing existing literature on ESG, corporate governance, ethical theory, and sustainability frameworks. It traces the development of ESG from socially responsible investing to its integration into contemporary corporate strategies and its growing alignment with global sustainability agendas such as the United Nations Sustainable Development Goals (SDGs). The analysis highlights that ESG practices can enhance corporate governance, financial stability, risk management, and stakeholder trust while supporting long-term value creation and sustainable business strategies. However, several limitations remain, including inconsistencies in ESG rating methodologies, the risk of symbolic compliance and greenwashing, stakeholder skepticism, and structural constraints within shareholder-oriented economic systems. Ethical perspectives further reveal tensions between profit maximization, stakeholder interests, and broader institutional responsibilities in evaluating corporate conduct. The findings suggest that although ESG provides useful guidance for improving transparency and sustainability practices, it remains an incomplete framework for assessing corporate responsibility. Strengthening regulatory frameworks, improving measurement standardization, and integrating ethical reasoning into corporate governance will be necessary to enhance the credibility and effectiveness of ESG initiatives.

The integration of Environmental, Social, and Governance (ESG) considerations into corporate finance has generated extensive yet fragmented research. Existing findings are heterogeneous, and causal claims are often undermined by measurement noise, selection bias, and pronounced ESG rating divergence. This lack of consensus obscures the mechanisms through which ESG affects firm value. To address this gap, this paper reviews recent developments by organizing evidence around five transmission channels: information, risk management, stakeholder relations, innovation, and capital allocation. Focusing on studies with credible identification, the review synthesizes findings on financial performance, cost of capital, climate risk, disclosure, governance, and engagement. The analysis reveals that ESG value creation is conditional, depending systematically on industry materiality, governance quality, and institutional context. The most robust evidence supports ESG's role in reducing financing costs and mitigating tail risks, while evidence of persistent alpha remains mixed. By clarifying boundary conditions and mechanisms, this review provides an integrated framework that reconciles prior inconsistencies. The paper concludes with implications for managers, investors, and policymakers and outlines promising frontiers in climate finance and machine-learning-based measurement. This synthesis thus offers a structured foundation for future theoretical and empirical inquiry.

ABSTRACT This paper provides the first event study evidence on how the Inflation Reduction Act's (IRA) dedicated climate provisions reshaped equity valuations in the US carbon‐intensive sectors. Focusing on environmentally sensitive industries (ESI), we analyze cumulative abnormal returns around the four key IRA milestones in 2022–2023. Using the IRA setting allows us to sidestep the bias arising from external ESG ratings or companies' ESG‐related disclosures. Drawing on the Efficient Market Hypothesis, we find a significant positive market reaction immediately after the Senate's approval. This reaction is concentrated among large firms, firms with extensive analyst coverage, and those operating in less competitive markets. We demonstrate that investor responses are heightened in Democratic‐controlled states compared with Republican‐leaning states. Our results are robust to several robustness checks, placebo dates, ex‐dividend returns, and propensity score matching. Our results suggest that investors' positive reactions may be driven by expectations that IRA subsidies can mitigate the cost implications of sustainability and thereby limit the negative impact on firms' financial performance. Our insights inform investment professionals on investor perceptions of climate provisions and policymakers on how climate legislation affects financial markets.

While Environmental, Social, and Governance (ESG) rating divergence poses a barrier to accurate sustainability measurement and sustainable investment, how internal managerial cognition addresses this external market misalignment remains underexplored. To address the research question of how executive focus shapes market consensus on corporate sustainability, this study integrates the Attention-Based View and Signaling Theory to examine the potential mitigating role of Top Management Team (TMT) environmental attention on ESG rating divergence. Utilizing high-dimensional fixed-effects regressions and textual analysis, we analyze a sample of Chinese A-share non-financial listed firms from 2015 to 2023. Empirical results indicate that a transparent and forthcoming managerial environmental focus helps reduce rating divergence, thereby partially aligning informational baselines. This cognitive alignment can act as an information calibrator, particularly when environmental issues match the firm’s core industry materiality, and this association appears more pronounced in regions with stringent environmental regulations. Robustness checks support the notion that substantive, quantitative sustainability disclosures driven by executive attention assist in alleviating informational misalignment among external rating agencies. These findings offer socio-economic and policy insights for advancing sustainable development, suggesting that regulators could consider encouraging structured sustainability reporting to support the role of executive cognition in standardizing ESG measurements.