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

Author

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

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.

Suggested Citation

  • Zhang, Xinyi & Khurram, Muhammad Usman & Moussa, Faten & Jiang, Yuexiang, 2025. "The role of voluntary environmental and social disclosure in mitigating ESG Rating divergence," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325006300
    DOI: 10.1016/j.frl.2025.107370
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