Steering through scandals: ESG disagreement and corporate strategies

Corporate scandals lower environmental, social, and governance ratings, but the extent to which scandals impact rating consistency remains unclear. This study investigates the impact of corporate scandals on disagreements in ESG ratings. Using data from Chinese listed companies from 2015 to 2022, we find that the occurrence of regulatory violations significantly increases ESG rating disagreements. Dissecting ESG subcategories reveals that scandals increase disagreements in the Governance (G) ratings while decreasing disagreements in the Social (S) ratings, likely due to reduced effective information disclosure in the social aspect. Investigating potential mitigation strategies, we find that improving information disclosure quality and establishing a good reputation through early social responsibility actions can weaken the impact of scandals on disagreements. In contrast, simply increasing disclosure quantity may further expand disagreements. Our findings provide important implications for ESG markets, policymakers, and corporate managers in understanding and managing ESG rating disagreements, especially in the context of corporate scandals.