Can readability of the ESG report alleviate rating divergence?

Abstract

Environmental, social, and governance (ESG) has received attention from all sectors of society as a measure that addresses the demands of sustainable and high-quality enterprise growth. However, in the absence of uniform disclosure and rating standards, the readability of the ESG reports disclosed by listed companies is uneven. This has led to ESG rating divergence, resulting in deviations in ESG-oriented practice and affecting enterprises and their stakeholders. The study use all Chinese A-share listed enterprises from 2019 to 2023 as the sample, this study constructs a measure of the readability of ESG reports and examines the influence thereof on divergence in ESG ratings. The study identifies that: (1) enhanced readability of ESG reports alleviate rating divergence, (2) improved readability of ESG reports alleviates rating divergence by reducing information asymmetry, and (3) the readability of corporate ESG reports located in low-carbon pilot cities and metropolis with high media attention has a relatively weak impact on rating divergence. Our findings add to existing research on ESG readability and suggest policy measures to improve disclosure regulations in this regard.