ESG Rating Disagreement and Stock Returns
48 Pages Posted: 10 Aug 2019 Last revised: 2 Feb 2021
Date Written: December 22, 2019
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, heterogeneous beliefs, stock returns, equity cost of capital, stock volatility, sustainable finance
JEL Classification: G12, G24, Q01
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