ESG Rating Disagreement and Stock Returns

Rajna Gibson Brandon, Philipp Krueger and Peter Steffen Schmidt

Financial Analysts Journal, 2021, vol. 77, issue 4, 104-127

Abstract: Using environmental, social, and governance (ESG) ratings from seven different data providers for a sample of firms in the S&P 500 Index between 2010 and 2017, we studied the relationship between ESG rating disagreement and stock returns. We found that stock returns are positively related to ESG rating disagreement, suggesting a risk premium for firms with higher ESG rating disagreement. The relationship is primarily driven by disagreement about the environmental dimension. We discuss the practical implications of our findings for firms’ equity cost of capital as well as for investment managers and asset owners who use ESG investment strategies.

Date: 2021
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Working Paper: ESG Rating Disagreement and Stock Returns (2019)
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DOI: 10.1080/0015198X.2021.1963186

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