Peer Effects in ESG Ratings: Evidence from Gender Pay Gap Disclosures

Abstract

ESG rating agencies promote competition among firms for better ratings by selecting global peers and benchmarking. I show that unregulated rating peer firms respond to the introduction of mandatory gender pay gap reporting in the United Kingdom (UK) by adopting similar disclosures voluntarily when their exposure to UK peers is high. This is more likely when mandated UK peers are lower-rated ex ante and when unregulated firms report better performance, indicating expected rating benefits factor into their disclosure decisions. Alternative peer definitions based on industry or market capitalization do not subsume this effect of ESG rating agency-selected peers. Firms’ disclosure response goes beyond a direct mimicking UK peers' GPG disclosure, extending to alternative social dimension topics. Combined, the findings highlight the role of ESG rating agencies in expanding the reach of ESG disclosure regulation beyond its actual scope, both geographically and to additional disclosure subjects.

Keywords: ESG ratings, benchmarking, peer effects, voluntary disclosure, gender pay gap disclosure

JEL Classification: M14, M48, D70