ESG Ratings Management

76 Pages Posted: 27 Jul 2023 Last revised: 25 Aug 2023

See all articles by Jess Cornaggia

Jess Cornaggia

Pennsylvania State University - Department of Finance

Kimberly Cornaggia

Pennsylvania State University - Department of Finance

Date Written: August 18, 2023

Abstract

This paper examines how corporations respond to changes in ESG ratings criteria. Using data from a leading ESG rater, we find that firms’ reported performance on certain criteria improves contemporaneously when the rater places more emphasis on the criteria. This effect is stronger among firms with ESG-focused institutional investors and customers. We find no evidence that reported performance predicts real changes in firms’ ESG behavior. Rather, the improvements appear cosmetic, suggesting the ratings management appeases investors and consumers who rely on ESG ratings. Overall, the results show how firms influence their ESG ratings when they participate in the rating process.

Keywords: ESG, ESG Ratings, Sustainability, Greenwashing, CSR

JEL Classification: G34, G24, D22

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly, ESG Ratings Management (August 18, 2023). Available at SSRN: https://ssrn.com/abstract=4520688 or http://dx.doi.org/10.2139/ssrn.4520688

Jess Cornaggia

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://https://directory.smeal.psu.edu/jnc29

Kimberly Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)

HOME PAGE: http://directory.smeal.psu.edu/kjr15

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