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ESG Rating Disagreement and Stock Returns

Swiss Finance Institute Research Paper No. 19-67

European Corporate Governance Institute – Finance Working Paper No. 651/2020

Financial Analyst Journal, Forthcoming

57 Pages Posted: 10 Aug 2019 Last revised: 23 Aug 2021

See all articles by Rajna Gibson

Rajna Gibson

University of Geneva - Geneva Finance Research Institute (GFRI); European Corporate Governance Institute (ECGI)

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; European Corporate Governance Institute (ECGI); University of Geneva - Geneva School of Economics and Management

Peter Steffen Schmidt

University of Zurich - Department of Business Administration

Date Written: December 22, 2019

Abstract

Using ESG ratings from seven different data providers for a sample of S&P 500 firms between 2010 and 2017, we study the relation between ESG rating disagreement and stock returns. We find that stock returns are positively related to ESG rating disagreement, suggesting a risk premium for firms with higher ESG rating disagreement. The relation 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.

Keywords: ESG ratings, disagreement, non-financial information, stock returns, equity cost of capital, sustainable finance

JEL Classification: G12, G24, Q01

Suggested Citation

Gibson, Rajna and Krueger, Philipp and Schmidt, Peter Steffen, ESG Rating Disagreement and Stock Returns (December 22, 2019). Swiss Finance Institute Research Paper No. 19-67, European Corporate Governance Institute – Finance Working Paper No. 651/2020, Financial Analyst Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3433728 or http://dx.doi.org/10.2139/ssrn.3433728

Rajna Gibson

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41.22.379.89.83 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute ( email )

Switzerland

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Geneva - Geneva School of Economics and Management ( email )

Uni Mail
Bd du Pont-d'Arve 40
Geneva, 1211
Switzerland

Peter Steffen Schmidt (Contact Author)

University of Zurich - Department of Business Administration ( email )

Rämistrasse 71
Zurich, CH-8006
Switzerland

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