Does Voluntary ESG Reporting Resolve Disagreement Among ESG Rating Agencies?

European Accounting Review, Forthcoming

50 Pages Posted: 13 Jun 2022

See all articles by Michael D. Kimbrough

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business

Sijing Wei

Creighton University - Heider College of Business

Jiarui (Iris) Zhang

California State University, Long Beach

Date Written: June 5, 2022

Abstract

US companies are increasingly responding to demand from investors and other stakeholders for transparent information about companies’ environmental, social, and governance (ESG) performance by issuing ESG reports on a voluntary basis. We examine whether these reports help to resolve the previously documented disagreement among ESG rating agencies about individual companies’ ESG performance. Consistent with this possibility, we find that disagreement among ESG rating agencies is lower for firms that voluntarily issue ESG reports. In particular, disclosures about the environmental and social dimensions help reduce disagreement about the company’s performance on those dimensions. Using textual analysis, we find that longer reports are associated with reduced disagreement among ESG raters while reports with more positive tones or that use a greater number of sticky words are associated with heightened disagreement. The association between ESG disclosure and ESG disagreement is more pronounced when firms obtain third-party attestations on their ESG reports, especially from accounting firms, and when firms adhere to advanced levels of Global Reporting Initiative (GRI) reporting standards. Finally, ESG disagreement is positively associated with disagreement and uncertainty in the capital market, providing strong motivation for firms to voluntarily disclose ESG reports to reduce ESG disagreement.

Keywords: Environmental, social, and governance (ESG) reporting; Voluntary disclosure; ESG rating agencies; Intermediaries; Disagreement

JEL Classification: G24, M14, M41, M42, M48, G38, Q56

Suggested Citation

Kimbrough, Michael D. and Wang, Xu (Frank) and Wei, Sijing and Zhang, Jiarui, Does Voluntary ESG Reporting Resolve Disagreement Among ESG Rating Agencies? (June 5, 2022). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4128503

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States
301-405-8222 (Phone)
301-314-9414 (Fax)

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Sijing Wei (Contact Author)

Creighton University - Heider College of Business ( email )

602 N 20th St
Omaha, NE Nebraska 68102
United States
402-280-1297 (Phone)

HOME PAGE: http://https://business.creighton.edu/

Jiarui Zhang

California State University, Long Beach ( email )

1250 Bellflower Blvd
Long Beach, CA 90064
United States

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