Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • January 2022
  • Article
  • Accounting Review

Why Is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings

By: Dane Christensen, George Serafeim and Anywhere Sikochi
  • Format:Print
ShareBar

Abstract

Despite the rising use of environmental, social, and governance (ESG) ratings, there is substantial disagreement across rating agencies regarding what rating to give to individual firms. As what drives this disagreement is unclear, we examine whether a firm’s ESG disclosure helps explain some of this disagreement. We predict and find that greater ESG disclosure actually leads to greater ESG rating disagreement. These findings hold using firm fixed effects, and using a difference-in-differences design with mandatory ESG disclosure shocks. We also find that raters disagree more about ESG outcome metrics than input metrics (policies), and that disclosure appears to amplify disagreement more for outcomes. Lastly, we examine consequences of ESG disagreement and find that greater ESG disagreement is associated with higher return volatility, larger absolute price movements, and a lower likelihood of issuing external financing. Overall, our findings highlight that ESG disclosure generally exacerbates ESG rating disagreement rather than resolving it.

Keywords

ESG Ratings; Rating Agency Disagreement; ESG Disclosure; Corporate Social Responsibility; Sustainability; Corporate Social Responsibility and Impact; Environmental Sustainability; Corporate Disclosure

Citation

Christensen, Dane, George Serafeim, and Anywhere Sikochi. "Why Is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings." Accounting Review 97, no. 1 (January 2022): 147–175.

Supplemental Information

Why is Corporate Virtue in the Eye of The Beholder - The Case of ESG Ratings
Online Appendix
  • Find it at Harvard
  • Read Now

About The Authors

George Serafeim

Accounting and Management
→More Publications

Anywhere Sikochi

Accounting and Management
→More Publications

More from the Authors

    • March 2022
    • Faculty Research

    Sustainable Product Management at Solvay

    By: George Serafeim
    • 2022
    • Financial Analysts Journal

    Which Corporate ESG News Does the Market React To?

    By: George Serafeim and Aaron Yoon
    • 2022
    • Faculty Research

    Climate Solutions Investments

    By: Alex Cheema-Fox, George Serafeim and Hui (Stacie) Wang
More from the Authors
  • Sustainable Product Management at Solvay By: George Serafeim
  • Which Corporate ESG News Does the Market React To? By: George Serafeim and Aaron Yoon
  • Climate Solutions Investments By: Alex Cheema-Fox, George Serafeim and Hui (Stacie) Wang
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Digital Accessibility
Copyright © President & Fellows of Harvard College