ESG Rating Disagreement and Stock Returns

By R. Gibson Brandon, Philipp Krueger, P. Schmidt. Financial analysts journal, 2019

575 citations recorded by the source corpus.

Using environmental, social, and governance (ESG) ratings from seven different data providers for a sample of firms in the S&P 500 Index between 2010 and 2017, we studied the relationship between ESG rating disagreement and stock returns. We found that stock returns are positively related to ESG rating disagreement, suggesting a risk premium for firms with higher ESG rating disagreement. The relationship is primarily driven by disagreement about the environmental dimension. We discuss the practical implications of our findings for firms’ equity cost of capital as well as for investment managers and asset owners who use ESG investment strategies.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/0303c7857cde49db4e7a93c241ea83ebec9d57b7

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Kornelia Fabisik
2. Florian Berg
3. Zacharias Sautner

In Finance

1. Florian Berg
2. Zacharias Sautner

In Strategy and Management

1. Kornelia Fabisik
2. Florian Berg
3. Zacharias Sautner

Citations in the corpus

• Rewriting History II: The (Un)Predictable Past of ESG Ratings (2020, background): “Berg et al. (2020) and Gibson et al. (2019) document large disagreement across major ESG rating providers in their evaluation of firms’ ESG performance.”
• When ESG meets AAA: The effect of ESG rating changes on stock returns (2021, unknown): “Gibson et al. (2019) suggest the relationship between ratings and performance can be more nuanced, with disagreement in ratings playing a key role in proxying risk-and mispricing-3 related factors.”