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The Retrospective and Predictive Effectiveness of ESG Ratings: Evidence from China

Author

Listed:
  • Rongxuan Liu

    (School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China)

  • Derek Wang

    (School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China
    The China ESG Institute, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China)

  • Shanshan Zheng

    (School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China)

  • Ning Cai

    (School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China)

Abstract

With the development and proliferation of sustainable investing, ESG ratings have gradually become an important basis for measuring corporates’ ESG performance and influencing investors to make investment decisions. However, the validity of ESG ratings has also raised public concerns due to the differences in the evaluation systems and standards of ESG rating agencies. This paper analyzes the effectiveness of ESG rating data provided by Chinese rating agencies in terms of retrospective and predictive effectiveness. It assesses how well these data reflect the past ESG performance of Chinese companies and its ability to predict future ESG performance. The study focuses on China Securities Index 300 companies from 2016 to 2020 and benchmarks their ESG ratings against five indicators derived from negative events. Through regression analysis, this paper studies the association between these indicators and ESG ratings. The results indicate that domestic ESG ratings in China can capture the past ESG performance of Chinese companies, but they can only partially predict the future ESG performance.

Suggested Citation

  • Rongxuan Liu & Derek Wang & Shanshan Zheng & Ning Cai, 2025. "The Retrospective and Predictive Effectiveness of ESG Ratings: Evidence from China," Sustainability, MDPI, vol. 17(11), pages 1-20, May.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:11:p:4819-:d:1663038
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