Do good and talk about it: The impact of investor relations quality on ESG ratings

• Our study examines the relationship between IR quality and ESG ratings. • IR quality is identified as a determinant of ESG ratings. • Higher IR quality is positively associated with higher ESG ratings. • IR activities help the market to accurately capture ESG information. This study provides robust evidence that higher investor relations (IR) quality goes in tandem with enhanced ESG ratings. Building on the extensive data from an established investor relations award in Germany, covering the largest listed firms between 2014 and 2022, we use both panel-data and two-stage least-squares regressions to analyze the effect of IR quality on ESG ratings. Our results hold true for various robustness checks. Moreover, not only do our results introduce a suitable measure for IR quality, but they also demonstrate the relevance of IR quality as an additional determinant of ESG performance measured by rating agencies. Finally, our results provide practical guidelines to firms struggling with their ESG ratings by providing reasoning that investing in higher IR quality eventually meets with success.