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The more, the better? The Role of Referencing Multiple Sustainability Reporting Standards for ESG Ratings
Type
dissertation project
Start Date
2023
Status
Working Paper
Keywords
sustainability reporting standards
ESG ratings
sustainability reporting
ESG rating divergence
automated textual analysis
Description
We examine Environmental, Social and Governance (ESG) rating divergence between active and passive raters, and argue that sustainability standards guide passive raters in aligning sustainability performance evaluations with active raters. Using 4,241 firm-year observations from 673 European firms between 2012 and 2021, we find that the number of referenced sustainability standards in a firm’s ESG report is negatively associated with ESG rating divergence between active and passive raters. Specifically, for every additional sustainability standard referenced in an ESG report, the standard deviation between passive and active ESG ratings decreases by 1.088 units. We further find that this effect is more pronounced in low-information environments and for principle-based and shareholder-oriented standards. Our results suggest that firms’ use of multiple ESG standards can increase the reliability and structure of disclosure for users and can help bridge the gap between the distinct information sets of active and passive raters. Overall, these findings highlight the usefulness of sustainability standards for passive raters in making sustainability performance evaluations.
Leader contributor(s)
Member contributor(s)
Andreas Seebeck
Robin Wolter
Funder(s)
Range
HSG + other universities
Division(s)