Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreement
Academic paper investigates whether ESG ratings predict future ESG news and the associated market reactions-
By analysing about 32.000 observations and using datasets from MSCI Inc., Sustainalytics, Refinitiv and Truvalue Labs, they document which ratings have forecasting power over future news in the presence of rating disagreement.
They find that the consensus rating predicts future news, but its predictive ability diminishes for firms with large disagreement between raters.
In the presence of high disagreement between raters, the relation between news and market reactions weakens while the rating with most predictive power predicts future stock returns. Overall, while rating disagreement hinders the incorporation of value relevant ESG news into prices, ratings predict future news and proxy for market expectations of future news.