ESG Rating Disagreement and Its Relationship with Financial Risk and Firm Value: Evidence from the United Kingdom and the United States

Mintari Yulianingsih

doi:10.59261/bustechno.v7i4.816

Authors

Mintari Yulianingsih Universitas Indonesia

DOI:

https://doi.org/10.59261/bustechno.v7i4.816

Keywords:

ESG Rating Disagreement, Financial Risk, Firm Value, Signalling Theory, Systematic Risk

Abstract

Background: The growing prominence of sustainable investing has amplified reliance on Environmental, Social, and Governance (ESG) ratings for guiding investment choices. Nevertheless, assessments of the same firm frequently vary among rating providers, generating uncertainty and informational imbalances.

Objective: This study investigates the association between ESG rating disagreement, financial risk, and firm value, addressing the scarcity of evidence regarding how divergence in ratings concurrently relates to market-based risk indicators and corporate valuation.

Methods: The analysis encompasses 60 firms listed in the United Kingdom and the United States over the 2019–2023 period. ESG scores obtained from Refinitiv Eikon, Bloomberg, and S&P Global are standardized through percentile rank transformation, and disagreement is quantified using the standard deviation of these standardized scores. Panel data regression models are applied to assess firm value proxied by Tobin’s Q, total risk proxied by stock return volatility, and systematic risk proxied by market beta.

Results: ESG rating disagreement exhibits a positive and statistically significant relationship with both firm value and systematic risk, whereas its link with total risk lacks statistical significance. These outcomes suggest that heightened rating divergence may correspond to elevated corporate valuation and increased sensitivity to broad market fluctuations, without necessarily amplifying overall stock return volatility.

Conclusion: The findings reveal ESG rating disagreement does not uniformly correspond to unfavorable market outcomes. The results lend support to the relevance of signalling and information asymmetry frameworks, offering practical insights for investors who consult multiple ESG rating sources and for corporate managers striving toward more coherent ESG communication.

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