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Corporate ESG Washing and ESG Rating Divergence: Evidence From China

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  • Hanwen Chen
  • Siyi Liu
  • Di Zhang
  • Lei Zhang

Abstract

Corporate environmental, social and governance (ESG) performance has drawn much attention. This study examines the effects of corporate strategic ESG disclosure behaviour. Specifically, we test the impact of corporate ESG washing on the divergence of ESG rating agencies. The results show that a greater degree of corporate ESG washing leads to greater ESG rating divergence. This impact is driven mostly by greenwashing within the environmental dimension of ESG. Furthermore, the positive relationship is stronger when there is more private information available, when firms are rated by a less accurate ESG rating agency and when firms have more volatile and complex operating activities and are located in regions with volatile ESG concerns than under other conditions. Finally, the results show that rating divergence negatively affects stock liquidity. In summary, this study suggests that firms' ESG washing behaviour increases the degree of information asymmetry and uncertainty among rating agencies, ultimately leading to rating divergence. Our findings have important implications for ESG development.

Suggested Citation

  • Hanwen Chen & Siyi Liu & Di Zhang & Lei Zhang, 2025. "Corporate ESG Washing and ESG Rating Divergence: Evidence From China," Business Strategy and the Environment, Wiley Blackwell, vol. 34(7), pages 8390-8428, November.
    • Handle: RePEc:bla:bstrat:v:34:y:2025:i:7:p:8390-8428
    DOI: 10.1002/bse.70017
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    1. Zhou, Jing & Wu, Tingwei & Wu, Kaiwen, 2026. "Responding to upstream uncertainty: How does supplier risk-taking affect client ESG performance?," International Journal of Production Economics, Elsevier, vol. 291(C).

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