ESG Rating Disagreement and the Quality of Analysts' Forecasts: Information or Noise

Abstract

The rise of ESG investment has stimulated the development of ESG ratings, while there is substantial ESG rating disagreement among different rating agencies, which creates a major obstacle to sustainable investment. This study empirically examines the impact of ESG rating disagreement on the quality of analysts' forecasts based on the data of Chinese listed companies from 2015 to 2021. It is found that the ESG rating disagreement significantly improves the quality of analysts' forecasts. Mechanism analysis demonstrates that ESG rating disagreement can enhance the quality of analysts' forecasts by increasing analysts' attention. Heterogeneity analysis reveals that the observed effect is more pronounced in companies with low information quality and those with star analysts. These findings not only objectively assess the impact of ESG rating disagreement, but also emphasise the crucial role of analysts in improving the capital market information environment.