Does ESG rating disagreement undermine ESG performance under mandatory disclosure? : Evidence from China

Abstract

This study examines whether ESG disagreement undermines firms’ ESG performance amid China’s shift toward mandatory ESG disclosure. Using a panel of Chinese A-share listed firms from 2018 to 2023, following the implementation of the revised Code of Corporate Governance, we measure ESG disagreement as the rating dispersion across major ESG rating agencies and ESG performance using WIND ESG scores. Employing firm and year fixed effects and 2SLS, we document a robust negative association between ESG disagreement and subsequent ESG performance. Economically, a one-standard-deviation increase in the logarithm of ESG disagreement is associated with a 0.176% decline in firms’ ESG scores. Further analysis suggests that financial constraints serve as an important channel through which ESG disagreement affects ESG performance, indicating that rating divergence exacerbates resource frictions under mandatory disclosure. The effect is most pronounced in the governance dimension, among non-SOEs, in high- pollution industries, and in middle provinces.