ESG Rating Agencies and Firms’ Sustainability Disclosures: Evidence from Refinitiv’s ESG Methodology Recalibration

Abstract

We study whether and how ESG rating agencies affect firms’ voluntary sustainability disclosures. Our analysis exploits Refinitiv’s 2020 methodology recalibration, which generates widespread changes in ESG scores for the same set of firm-years, absent changes in ESG fundamentals. Using point-in-time rating data and granular environmental and social measures, we find that following the methodology recalibration firms with a larger negative revision in the ESG scores have a greater increase in sustainability disclosures, particularly for the measures that industry peers commonly disclose. In addition, the effect of negative ESG score revisions on the disclosures is stronger among firms with a lower MSCI ESG score and a larger ownership of sustainability sensitive institutional investors. Our inference holds for climate-related disclosures and extends to the ESG ratings by Bloomberg and MSCI. Collectively, our findings underscore the importance of ESG rating agencies in improving disclosures of sustainability information.