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ABSTRACT Tone, as a key linguistic feature of corporate narrative disclosures, plays a crucial role in shaping information users' evaluation of firm performance. However, whether and how the tone in ESG (Environmental, Social, and Governance) reports influences rating agencies' assessments of firms' ESG performance remains underexplored. Using data from Chinese listed firms between 2018 and 2022, we explore the impact of ESG report tone on ESG rating divergence. Our findings indicate that positive expressions in ESG reports worsen the divergence in ESG ratings, particularly in the environmental ratings. Conversely, negative expressions in ESG reports enhance consistency in rating outcomes. Heterogeneity tests reveal that greater positive expressions in ESG reports exacerbate rating divergence only when firms' ESG reports exhibit low credibility, as indicated by mandatory disclosure, low readability, and high media pressure. In contrast, the impact of negative statements in ESG reports on consistency in rating outcomes is unaffected by the credibility of ESG reports. Our study contributes to the existing literature on the relationship between ESG report textual quality and ESG rating divergence in emerging markets.
Luo et al. (Thu,) studied this question.