ESG Rating Disagreement and Sustainability Reporting: The Role of Reporting Standards and Assurance Practices

Abstract

Though environmental, social, and governance (ESG) ratings have the common ambition of measuring companies' sustainability-related risks, their usefulness is undermined by the issue of disagreement among diverse ESG ratings. Among the determinants of ESG disagreement, this paper focuses on the input information used by rating agencies, with specific attention to public disclosures. In detail, the paper aims at understanding whether adopting sustainability standards and external assurance of sustainability reports affects ESG rating disagreement. Based on an analysis of STOXX 600 and S&P 500 companies, and considering leading ESG providers (Refinitiv, S&P, Sustainalytics, MSCI, and ISS), our results show that, whilst the adoption of reporting standards does not influence ESG rating disagreement, the adoption of assurance practices determines a reduction of this phenomenon. Based on these results, the paper discusses implications for regulators and investors and provides paths for future research.