The influence of market and institutional factors on ESG rating disagreement

Abstract The lack of convergence between rating agencies in the assessment of environmental, social, and governance (ESG) aspects of companies leads to the so‐called ESG rating disagreement. Although this phenomenon causes confusion and uncertainty among investors, it is still little investigated. Previous research has only focused on some determinants of the disagreement, mainly related to nonfinancial disclosure and corporate aspects, while broader determinants remain unexplored. This study aims to fill this gap by analysing the effects of market value, industry sensitivity, and institutional context on disagreement between two different rating providers. To achieve this goal, a cross‐sectional analysis was conducted for 1809 companies from the S&P 1200 Global Index. The results show that companies with a better market rating, belonging to critical sectors and located in countries with a better institutional environment, have a lower level of ESG disagreement.