Economic policy uncertainty and corporate ESG rating divergence: evidence from China

How does economic policy uncertainty (EPU) affect corporate ESG rating divergence? This study examines the impact of EPU on corporate ESG rating divergence and its mechanism using a sample of Chinese A-share listed companies from 2018 to 2022. We find that EPU reduces corporate ESG rating divergence. The mechanism analysis suggests that EPU reduces divergence in corporate ESG ratings by improving the quality of ESG information disclosure. Further analysis indicates that EPU reduces ESG rating divergence for firms with strong financing constraints but increases it for firms with strong profitability. Furthermore, we found that EPU reduces the social ESG rating divergence of firms to the greatest extent, corporate governance ESG rating divergence to the second greatest extent, and environmental ESG rating divergence to the least extent. This study provides a worthwhile theoretical and practical basis for understanding the changes in corporate ESG rating divergence under economic policy uncertainty.