The role of voluntary environmental and social disclosure in mitigating ESG Rating divergence

Xinyi Zhang, Muhammad Usman Khurram, Faten Moussa and Yuexiang Jiang

Finance Research Letters, 2025, vol. 81, issue C

Abstract: The paper examines whether and how firms voluntary disclosures on environmental and social (E&S) responsibility mitigate ESG rating divergence. For this purpose, we employ a panel regression model, endogeneity analysis, moderating effect test (public attention), and heterogeneity analysis (quality of information disclosure and corporate governance, external assurance, and greenwashing). (1) Based on the results, we find that E&S voluntary disclosures effectively reduce ESG rating divergence and extra public attention (analysts, media, and institutional investors) can strengthen this effect in China during 2018–2022. Our results are robust after addressing the endogeneity problems, employing alternate proxies, and several additional tests. (2) Our results are more pronounced for firms with higher disclosure quality and better governance practices, assured by external auditors and complied with GRI standards. (3) Conversely, greenwashing practices and compromised information quality can inadvertently increase disagreements among ESG raters. Our study provides valuable insights for policymakers, investors, and corporate practitioners seeking to promote transparency, accountability, and sustainability in the global marketplace.

Keywords: Voluntary disclosure; ESG rating divergence or disagreement; External attention, External assurance, Greenwashing (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612325006300
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325006300

DOI: 10.1016/j.frl.2025.107370

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().