Divestment, information asymmetries, and inflated ESG ratings

Socially responsible divestment reduces aggregate sustainable performance when investors use Environmental, Social, and Governance (ESG) ratings. Due to information asymmetries, socially responsible investors shift their portfolios towards firms with high ESG ratings rather than firms with exemplar sustainable performance. We causally show that this provides incentives for firms to reduce their cost of capital by inflating their ESG ratings. Consequently, ESG rating inflation is so prominent that Refinitiv, MSCI IVA, and FTSE ESG ratings are inversely related to sustainable performance because promises of sustainable performance improvements do not materialize up to 15 years in the future. Accordingly, the ESG-rating-based divestment portfolios are less sustainable than the market portfolio. Therefore, divestment hinders rather than helps societal welfare

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Year of publication:	[2022]
Authors:	Bams, Dennis ; van der Kroft, Bram
Publisher:	[S.l.] : SSRN
Subject:	Asymmetrische Information \| Asymmetric information \| Inflation \| Desinvestition \| Disinvestment \| Corporate Social Responsibility \| Corporate social responsibility \| Nachhaltige Kapitalanlage \| Sustainable investment \| Schätzung \| Estimation \| Theorie \| Theory

Extent:	1 Online-Ressource (67 p)
Type of publication:	Book / Working Paper
Language:	English
Notes:	Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 3, 2022 erstellt
Other identifiers:	10.2139/ssrn.4126986 [DOI]
Classification:	M14 - Corporate Culture; Social Responsibility ; Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounting ; G15 - International Financial Markets ; G11 - Portfolio Choice
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10013405630