This study examines how ESG ratings affect firms’ sustainability disclosure and performance. Taking advantage of the 2020 methodology recalibration of Refinitiv, a major ESG rating agency, we find that firms with a larger negative revision in the ESG scores exhibit greater improvement in sustainability practices following the recalibration. The effect holds for both environmental and social pillars but does not extend to firms with a positive ESG score revision. Further analysis finds that the improvement in sustainability practices is driven by quantitative disclosures and qualitative practices, not quantitative performance. In addition, we observe improvement in transparency scores, but not performance scores, by other ESG rating agencies. Consistent with the notion that market participants value firms’ ESG ratings, the stock market reactions are more negative for firms that receive larger negative ESG score revisions. Overall, we contribute to the literature by documenting the effect of ESG rating agencies on firms’ sustainability practices and highlighting the importance of rating methodology.
| Speaker: | Dr Mingyi Hung Chair Professor, Fung Term Professor of Accounting, Hong Kong University of Science and Technology |
| When: |
- |