Does ESG rating disagreement impede corporate green innovation?

Abstract

This paper investigates the effect of environmental, social, and governance (ESG) rating disagreement between agencies on corporate green innovation. Using a sample of Chinese-listed firms, we find that an increase in ESG rating disagreement causes a reduction in green innovation. Moreover, the negative effect becomes more pronounced when firms face poor information disclosure, higher information asymmetry, and greater information uncertainty. Additional analyses indicate that losing the corporate sustainability signal due to disagreement leads to detrimental economic consequences, which diminishes green innovation motivation. However, digitalization and analyst coverage can mitigate this negative link. Our paper provides new insights into the real effects of ESG rating disagreement on corporate green innovation.