Unveiling ESG ratings: corporate perspectives and institutionalisation dynamics

Purpose Environmental, social and governance (ESG) ratings have become a central mechanism for assessing, benchmarking and signalling corporate sustainability performance to financial investors. Yet, their widespread use persists despite ongoing criticism of their capacity to accurately reflect firms’ social and environmental contributions. This paper aims to examine this paradox from the perspective of rated companies, exploring why firms continue to engage with ESG ratings despite criticism of their effectiveness, even as investors remain their primary users. Drawing on institutional theory, the authors adopt this underexplored perspective and investigate how ESG ratings become institutionalised within organisations. Design/methodology/approach Based on abductive thematic analysis of 45 semi-structured interviews with sustainability executives from listed European firms, the authors develop a framework distinguishing between substantive and symbolic forms of ESG rating institutionalisation. Findings ESG rating adoption is shaped by institutional pressures and unfolds along a continuum. At one end, firms substantively integrate sustainability considerations into core operations; at the other, ESG ratings are used symbolically to secure external recognition and legitimacy. This study also highlights the risk of deinstitutionalisation if the limitations of ESG ratings remain unaddressed. Practical implications This study offers managers, investors and policymakers insights into navigating ESG pressures and strengthening the credibility of ESG frameworks while providing a diagnostic lens to distinguish symbolic compliance from substantive integration. Social implications While the potential deinstitutionalisation of ESG ratings could erode credibility, accountability and investor trust, substantive adoption could benefit transparency, stakeholder oversight and the diffusion of sustainability norms. Addressing their limitations is therefore crucial for maintaining credibility in the financial sector and directing capital towards companies with meaningful sustainability practices. Originality/value This study extends research on corporate responses to ESG ratings by drawing on institutional theory and developing a conceptual framework of symbolic and substantive institutionalisation from the perspective of rated companies. Specifically, it shifts the explanatory focus beyond firms’ strategic orientations by showing that corporate responses are also shaped by the institutional characteristics and structural limitations of ESG rating systems, thereby advancing the concept of ESG ratings’ deinstitutionalisation.