ESG Disclosure Quality And Ratings’ Divergence: An Empirical Analysis

Abstract

While the literature is harmonized on documenting the existence of ESG rating divergence both at the aggregate ESG score and at the pillars level, there has been limited discussions on solutions to increase convergence between agency providers. In particular, the relationship between the quality of the sustainability disclosure and ESG rating divergence is not agreed on. Using a sample of companies from the S&P500 Dow Jones Index and from STOXX Europe 600, for a total of 1,305 firm-year observations from 2016 to 2022, this thesis explores the relation between the quality of ESG disclosure and ESG rating disagreement. The findings confirm the existence of a negative relationship between the quality of ESG disclosure and the rating divergence, highlighting that the higher quality of sustainability disclosure results in lower ESG rating disagreement. As a consequence, a more granular approach in the sustainability disclosure could improve the transparency and positively impact ESG rating divergence.